BUSI 320 Read & Interact Block, Hirt, & Danielsen Chapter 5 solutions complete answers

BUSI 320 Read & Interact Block, Hirt, & Danielsen Chapter 5 solutions complete answers

 

A company employing heavy financial leverage has a cost to borrow of 8% and return on assets of 10%. As EBIT increases the firm will greatly expand its _____.

 

Firm's that expand the use of debt in their capital structure run the risk of

 

Firms with a lower degree of operating leverage will have a

 

Break-even analysis is used to answer which of the following question(s)?

 

In accounting and finance, depreciation represents a(n)

 

Assuming that the break-even point has been surpassed, a firm that utilizes a low degree of operating leverage will produce ________ profits than a firm that utilizes a higher degree of operating leverage.

 

Firms with a high degree of leverage are less dependent on volume than firms with a low degree of leverage.

 

Total costs are dependent on the company’s volume.

 

Firms with a lower degree of leverage have a higher potential for profit.

 

Firms that are in financial trouble frequently utilize a cash break-even analysis.

 

Cash break-even analysis is helpful in analyzing the ________ outlook of the firm, particularly when the firm may be in trouble.

 

The area on the break-even chart above the break-even point represents

 

Contribution margin is defined as

 

The      axis of the break-even chart shows the number of units produced and sold.

 

The      axis of the break-even chart shows the revenue and costs.

 

The total     line is based on the volume times the price.

 

A company has sales of $1,200,000 (20,000 units at $60 each), variable costs of $30 per unit, fixed costs of $400,000, interest expense of $50,000, and a tax rate of 30%. What is the company’s degree of combined leverage?

 

The price of a firm’s product is $10, variable costs are $4, and fixed costs per unit are $2. What is the contribution margin?

 

If the firm’s total costs are $100,000 and total revenue is $75,000, the firm will need to produce and sell     units to break-even

 

Variable costs include all of the following except

 

The use of debt is recommended for firm’s in industries that

 

Firms that rely on equity financing will

 

Financial leverage reflects the amount of fixed costs used by the firm.

 

During an economic downturn, when a firm's sales volume is low, a firm that has high variable costs may ___.

 

During an economic upturn, when a firm's sales volume is high, a firm that has high fixed costs may ___?

 

Cash break-even analysis is helpful in analyzing the ________ outlook of the firm, especially when the firm may be in trouble.

 

Assuming that the break-even point has been surpassed, a firm that utilizes a high degree of operating leverage will produce ________ profits than a firm that utilizes a lower degree of operating leverage

 

Semi-variable costs     as the number of units produced increases.

 

A company has sales of $2,250,000 (30,000 units at $75 each), variable costs of $25 per unit, fixed costs of $400,000, interest expense of $100,000, and a tax rate of 30%. What is the company’s degree of financial leverage?

 

The horizontal axis of the break-even chart represents the

 

The vertical axis of the break-even chart represents the

 

Assuming the break-even point has been surpassed, a firm that utilizes a low degree of operating leverage will produce ________ profits than a firm that utilizes a lower degree of operating leverage.

 

During an economic downturn, when a firm’s sales volume is low, a firm that has high fixed costs may    ?

 

At high levels of operation, the profit potential for a firm that is not highly leveraged is __ compared to that of a highly leveraged firm.

 

The degree of operating leverage can be defined as the

 

_______ can be used to determine how much changes in volume affect costs and profits.

 

Debt and equity are methods used to

 

Besides depreciation, what other noncash items can be adjusted when using cash break-even analysis.



Contribution margin is

 

The break-even point is

 

Break-even analysis is employed to evaluate

 

The closer DOL is computed to the company break-even point, the _____ DOL number will be due to a large percentage increase in operating income.

 

Variable costs include 

 

The extent with which debt is utilized in the firm is known as

 

Company A and B both have sales of $1,200,000 (20,000 units at a price of $60 each). Company A has variable costs of $30 per unit, fixed costs totaling $400,000, and interest of $25,000. Company B has variable costs of $20 per unit, fixed costs totaling $600,000, and interest of $50,000. Company A’s DFL is    and Company B’s DFL is    .

 

The area below the break-even point represents ___ to the firm.

 

At an EBIT level of $40,000 and a DFL of 2, a 1 percent increase in earnings will produce a    percent increasing in earnings per share.

 

Semi-variable costs include

 

Firms that rely on debt financing will

 

A company has fixed costs of $20,000, variable costs of $1.00 per units, and a price of $3.00 per unit, the company’s break-even point is _____ units.

 

The degree of combined leverage is the

 

Company A and B both have sales of $1,200,000 (20,000 units at a price of $60 each). Company A has variable costs of $30 per unit, fixed costs totaling $400,000, and interest of $50,000. Company B has variable costs of $20 per units, fixed costs totaling $600,000, and interest of $25,000. Which company has the greatest degree of combined leverage?

 

Company A has sales of $1,200,000 for 20,000 units sold, variable costs of $25 per unit, and fixed costs totaling $560,000. The company’s degree of operating leverage is   .

 

The production process requires that management determine the amount of ___ to be used.

 

Maximum leverage can be achieved through the use of __ leverage.

 

A firm has fixed costs of $80,000 that includes a depreciation expense of $10,000 and a contribution margin of $0.70. So, the break-even point in units on a strictly cash basis is _______?

 

A simple formula for determining a firm’s break-even point is

 

Firms that take a conservative approach to the use of operating leverage may increase variable costs in lieu of adding _____ costs.

 

Fixed costs include

 

The use of debt is recommended for firm's industries that

 

Substantial use of debt will place a large burden on the firm at (high or low) __ levels of profitability.

 

Using EBIT, instead of Net Income in the return on assets ratio nulls the effects of the different capital structures and tax rates used by different companies. With this in mind, if company A has an EBIT of $15,000 and total assets of $199,000 what is the company earning on it’s assets? Give you answer in percent to two decimal places.

 

Financial leverage is defined as 

 

Depreciation is an ___ flow that represents a noncash accounting entry.

 

Which factor(s) influence management's decision to follow a more aggressive approach to the firm's leverage or a more conservative approach?

 

     leverage reflects the extent to which fixed assets and associated fixed costs are utilized in the business.

 

 
 
 
A degree of combined leverage of 2 indicates that a 1% change in sales will be affected by a _______ change in earnings per share
 
 
 
If interest expense for a firm rise, we know that firm has taken on more 

A. financial leverage 
B. operating leverage 
C. fixed assets
 
 
 
The curve on the break even chart that starts at zero on the vertical axis and increases by the amount of the product's price represents the firm's 

A. total revenue curve
B. total cost curve
 
 
 
The line on the break even chart that starts with fixed costs at the vertical access and increases by the amount of variable costs per additional units produced represents the firm's 

A. total cost curve 
B. revenue per unit produced and sold
C. total revenue curve
D. costs per unit produced and sold
 
 
 
Firms that expand the use of debt in their capital structure run the risk of 

A. being perceived by lenders as a greater financial risk 
B. common stockholders driving down the price of stock 
C. decreasing the company's sales revenue
D. paying higher interest rates
 
 
 
The _________ is the percentage change in earnings per share that results from a percentage change in operating income 

A. degree of combined leverage 
B. degree of financial leverage 
C. degree of operating leverage
 
 
 
the area on the graph above the break even point represents 

A. losses 
B. profits
 
 
 
In breakeven analysis, if fixed costs rise, then the breakeven point will 

A. fall 
B. rise 
C. stay the same
 
 
 
Which of the following types of firms may operate with high operating leverage?

A. a doctor's office 
B. an auto manufacturing facility 
C. a mental health clinic
 
 
 
 
 
 
 
 
 
 
 

 
 
 
A company producing and selling 70,000 units has a DOL of 1.5, which indicates that at 70,000 units a 

A. 1% decrease in sales volume will produce a 1.5% increase in operating income 
B. 1.5% increase in sales volume will produce a 1% change in operating income 
C. 1% increase in sales volume will produce a 1.5% change in operating income
 
 
 
operating and financial leverage enable a firm to magnify its 

A. dividend 
B. depreciation 
C. operating expenses 
D. returns
 
 
 
The break-even point occurs when the company's 

A. total profits=total costs
B. total revenue=fixed costs 
C. total revenue=variable costs
D. total revenue=fixed costs+variable costs
 
 
 
The use of debt is recommended for all firms in the industries below EXCEPT those in 

A. offer some degree of stability 
B. are operating under positive economic conditions 
C. are in a positive stage of growth 
D. are in a positive stage of maturity
 
 
 
Fill in either increases, decreases 

the degree of operating leverage __________ as the quantity sold ________ because we are further away from the break even point, thus the firm is earning a larger profit and its easier to pay the FC.
 
 
 
Choose: exceeds, equals, or less than 

EPS is unaffected by financial leverage when the pre-tax return on assets (EBIT/TA) _________ the cost of debt
 
 
 
true or false: the closer a firm is to its break even point, the lower the degree of operating leverage will be.
 
 
 
true or false: firms with cyclical sales should employ a high degree of leverage
 
 
 
A company employing heavy financial leverage has a cost to borrow of 8% and return on assets of 10%. As EBIT increases the firm will greatly expand its 
A. earnings per share 
B. Common stock dividends 
C. operating expenses 
D. gross profit
 
 
 
 
 
 
 

 
 
 
the use of special force and effects to produce more than normal results from a given course of action; the employment of fixed cost items in anticipation of magnifying returns at high levels of operation 
-produces highly favorable results when things go well and the opposite under negative conditions
 
 
 
cash break-even analysis eliminates the depreciation expense and other non-cash charges from fixed costs
 
 
 
true or false: managers who are risk averse and uncertain about the future would most likely minimize combined leverage
 
 
 
true or false: financial leverage emphasizes the impact of using debt in the business
 
 
 
financial leverage breakeven occurs when return on total assets is equal to the cost of borrowed funds
 

 

5.
Break-even analysis is used to answer what?
 
 
8.
A company employing heavy financial leverage has a cost to borrow 8% and return on assets of 10%. As EBIT increases the firm will greatly expand its
 
 
10.
The curve on the break-even chart that starts at zero on the vertical axis and increases by the amount of the product's price represents the firm's:
 
 
13.
Degree of financial leverage is defined as
 
 
17.
During an economic upturn, when a firm's sales volume is high, a firm that has high VARIABLE costs will ___?
 
 
19.
The extent with which fixed costs are used in the operations of the firm is known as
 
 
23.
The higher a firm's degree of operating leverage, the greater the increase in income as ___
 
 
26.
The line on the break-even chart that starts with fixed costs at the vertical axis and increases by the amount of the variable costs per additional units produced represents the firm's
 
 
28.
Once the company produces and sells the units required to break-even, each additional sales will increase profit by an amount equal to the
 
 
29.
Operating and financial leverage enable a firm to magnify its ___.
 
 
33.
To evaluate the implications of using heavy fixed assets, a firm can employ the technique of
 
 
 
 
 
 
 
 
 
 
 

 

Operating leverage is defined as….

 

Which factor(s) influence management’s decision to follow a more aggressive approach to the firms leverage or a more conservative approach?

          

Depreciation is an accounting flows rather than a ___________ flows.

          

Financial leverage is defined as

          

 

Firms that expand the ise of debt in their capital structure run the risk of…

           

 

The company has fixed costs of $20,000 and a contribution margin of $0.50, the company’s break-even point is ______units?

          

Debt financing can be advantageous to a firm, but only up to a point.

          

A firm must first determine the amount of which types of costs to be used in the production process.

          

 

A company employing heavy financial leverage has a cost to borrow of 8% and return on assets of 10%.

          

A firm that is unable to make its debt payments may be subject to _______.

          

 

Variable costs _____ as the number of units produced increases.

          

Operating leverage is defined as the

          

 

Company A and B have sales of $1,200,000 (20,000 units at a price of $60 each). Company A has variable costs of $30 per unit and fixed costs totaling $400,000. Company B has variable costs of $20 per units and fixed costs totaling $600,000. Company A has a DOL of ____ and company B has a DOL of ____.

 

A company producing and selling 70,000 units has a DOL of 1.5, which indicates that at 70,000 units a

 

When management expects an economic downturn it may be in the firm’s best interest to undertake a     plan.

 

Firms that expand the use of the debt in their capital structure run the risk of…

 

 

All of the following are considered fixed costs except…

 

The firm can finance the business using…

 

Using cash break-even analysis, what is deducted from fixed costs to arrive at the break-even point?

 

Firms that rely of equity financing will

          

 

The extent which debt is utilized in the firm is known as

          

The curve on the break-even chart that starts at zero on the vertical axis and increases by the amount of the products price represents the firms____

          

Fixed costs ____ as the number of units produced increases