PRACTICE

QUESTION 11

If a firm does not have debt, then ____.

	a.	the firm has no business risk
	b.	the firm's ROA is less than its ROE
	c.	the firm's ROE is higher than it had debt
	d.	the firm has no financial risk

5 points

QUESTION 12

If the DFL equals one, then ____.

	a.	additional debt does not affect EPS
	b.	there is no business risk
	c.	financial risk is maximized
	d.	ROCE equals ROE

5 points

QUESTION 13

In the MM model, the mix of debt and equity that minimizes the cost of capital is the:

	a.	target financial structure.
	b.	optimal capital structure.
	c.	optimal corporate structure.
	d.	optimal degree of combined leverage.

5 points

QUESTION 14

Operating leverage increases as the proportion of __________________ increases.

	a.	Fixed costs
	b.	Assets
	c.	Equity
	d.	Variable costs

5 points

QUESTION 15

ROE can be converted to EPS by multiplying ROE by ____.

	a.	equity / number of shares
	b.	the equity multiplier
	c.	1 / number of shares
	d.	ROA

5 points

QUESTION 16

The breakeven point on a breakeven diagram is:

	a.	the point where the total cost line and the revenue line intersect.
	b.	the point where the fixed cost line and the revenue line intersect.
	c.	the point where the total cost line intersects the horizontal axis.
	d.	the point where the total cost line intersects the vertical axis.

5 points

QUESTION 17

The difference between fixed and variable costs is that:

	a.	variable costs move up and down with changes in sales while fixed costs remain constant.
	b.	variable costs are only found in factory operations while fixed costs occur only in expenses.
	c.	fixed costs are the costs of fixed assets, everything else is a variable cost.
	d.	Both a and b

5 points

QUESTION 18

The use of fixed-cost financing is referred to as:

	a.	a leveraged buyout.
	b.	financial leverage.
	c.	combined leverage.
	d.	operating leverage.

5 points

QUESTION 19

_____ analysis shows the mix of fixed and variable costs at various output levels and the volume required for zero profit/loss.

	a.	Breakeven
	b.	Input
	c.	Income-cost
	d.	Operations

5 points

QUESTION 20

_____ include(s) direct labor and direct materials as well as other items that go up and down with sales, such as commissions.

	a.	Expenses
	b.	Overhead
	c.	Variable cost
	d.	Depreciation