Multiple Question
Question 1
A firm's break-even point will rise if:
A. fixed costs decrease.
B. contribution margins increase.
C. price per unit rises.
D. variable cost per unit rises.
Question 2
Which of the following is concerned with the change in operating profit as a result of a change in volume?
A. Financial leverage
B. Break-even point
C. Operating leverage
D. Combined leverage
Question 3
Cash breakeven analysis:
A. is helpful in analyzing the short-term outlook of the firm, particularly when it is in trouble financially.
B. is important when analyzing long-term profitability.
C. includes depreciation expense as a fixed cost when calculating the degree of financial leverage.
D. none of the above
Question 4
The degree of operating leverage may be defined as:
A. the percent change in operating income divided by the percent change in unit volume.
B. Q (P-VC) divided by Q (P-VC) - FC.
C. S - TVC divided by S - TVC - FC.
D. all of the above.
Question 5
The degree of operating leverage is computed as:
A. percent change in operating profit divided by percent change in net income.
B. percent change in volume divided by percent change in operating profit.
C. percent change in EPS divided by percent change in operating income.
D. percent change in operating income divided by percent change in volume.
Question 6
Financial leverage deals with:
A. the relationship of fixed and variable costs.
B. the relationship of debt and equity in the capital structure.
C. the entire income statement.
D. the entire balance sheet.
Question 7
A conservative financing plan involves:
A. heavy reliance on debt.
B. heavy reliance on equity.
C. high degree of financial leverage.
D. high degree of combined leverage.
Question 8
If EBIT equals $160,000 and interest equals $30,000, what is the degree of financial leverage?
A. 5.33x
B. 1.23x
C. 0.8125x
D. 4.33x
Question 9
The degree of financial leverage is concerned with the relation between:
A. changes in volume and changes in EPS.
B. changes in volume and changes in EBIT.
C. changes in EBIT and changes in EPS.
D. changes in EBIT and changes in operating income.
Question 10
When a firm employs no debt:
A. it has a financial leverage of one.
B. it has a financial leverage of zero.
C. its operating leverage is equal to its financial leverage.
D. it will not be profitable.
Question 11
Combined leverage is concerned with the relationship between:
A. changes in EBIT and changes in EPS.
B. changes in volume and changes in EPS.
C. changes in volume and changes in EBIT.
D. changes in EBIT and changes in net income.
Question 12
If the business cycle were just beginning its upswing, which firm would you anticipate would be likely to show the best growth in EPS over the next year? Firm A has high combined leverage, and Firm B has low combined leverage.
A. Firm A
B. Firm B
C. Indifferent between the two
D. It depends on how much financial leverage each firm has
Question 13
In parts of Eastern Europe, companies maintain special guards to protect payday funds, to help move products to market, and to enforce immediate payment for products sold to retailers. All of these features indicate:
that property rights are respected and transactions costs are low.
that property rights are weak and transactions costs are low.
that property rights are weak and transactions costs are high.
that property rights are respected and transactions costs are high.
Question 14
Most governments enforce patents, copyrights, and trademarks. While these are clear restrictions on free trade, it is believed that inventors and investors:
generally oppose these restrictions as monopolistic.
favor these restrictions since they promote inventive activities.
are indifference since they have no impact on business.
prefer low prices to patents.
Question 15
Ralph Nader has long argued that large corporations in oligopolistic markets should use their vast productive powers to redress social ills. Implementing this policy may put the company:
in conflict with the government.
in conflict with its trade unions.
in conflict with the process of wealth maximization.
on a list of companies disliked by religious groups.
Question 16
Most governments enforce patents, copyrights, and trademarks. While these are clear restrictions on free trade, it is believed that inventors and investors:
generally oppose these restrictions as monopolistic.
favor these restrictions since they promote inventive activities.
are indifference since they have no impact on business.
prefer low prices to patents.
Question 17. Which statement BEST describes why a successful entrepreneur needs to be flexible?
a. Starting a new business often leads to envy in the wider business community.
b. People with whom entrepreneurs work are often opinionated and rigid.
c. Entrepreneurial ventures involve risky situations and unexpected events.
d. Initial business revenues tend to be low and may remain low for several years.
Question 18. If you are planning to start a new business, how long should you realistically expect it to take for your business to earn a profit?
a. six to twelve months
b. one to two years
c. three to five years
d. more than five years
Question 19. Globalization is recognized by all as a force for good in the U.S. economy.
a. false
b. true
Question 20. Almost all businesses are organized the same way, in a vertical, hierarchical structure.
a. false
b. true
10 years ago
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