Chapter 8

1. Certain liability and net worth items generally increase spontaneously with increases in sales. Put an ( x ) by those items that typically increase spontaneously:

Accounts payable ________

Notes payable to banks ________

Accrued wages ________

Accrued taxes ________

Mortgage bonds ________

Common stock ________

Retained earnings ________

2. What benefits can be derived from breakeven analysis?

3. Explain how profits or losses will be magnified for a firm with high operating leverage as opposed to a firm with lower operating leverage. 4. Discuss the relationship between a firms degree of total leverage and its perceived risk.