Operating and Financial Leverage
Assess your learning about EBIT-EPS analysis, break-even point, operating leverage (business riks), financial leverage (trading on equity), and Total leverage (total risk).
If a firm's earnings before interest and taxes is $12,000 and the company's interest expense is $9,000, the degree of financial leverage will be 4. What does this imply?
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An increase in leverage does which of the following?
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Higher operating leverage is related to the use of additional __________.
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Which of the following costs would be considered a fixed cost?
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______ leverage focuses on the top of the income statement, from sales to earnings before interest and tax. _____ leverage focuses on the bottom of the income statement, from earning before interest and tax to earnings per share.
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The probability that a firm will become bankrupt due to its inability to meet its obligations as they come due depends on
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EBIT is usually the same thing as:
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A firm has a DOL of 3.5 at Q units. What does this tell us about the firm?
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A firm's degree of total leverage (DTL) is equal to its degree of operating leverage its degree of financial leverage (DFL).
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At the operating breakeven point, _____ equals zero.
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Which of the following is true about financial leverage?
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Company X sells watches for $25 per watch. The fixed cost of this operation is $80,000, while the variable costs are $15 per watch. What is the breakeven point in number of watches?
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A firm has a DFL of 3.5 at X dollars. What does this tell us about the firm?
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________ leverage is concerned with the relationship between a firm's sales revenue and earnings per share.
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Frank's Pasta Maker has fixed operating costs of $28,500. The company's one product sells for $60 per unit while variable operating costs are $45 per unit. At what quantity of sales are all fixed and variable operating costs covered?
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If the _____ increases, there will be a decrease in the breakeven point.
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