Southern New Hampshire University
FIN-320 Principles of Finance
EXAM 7 questions and answers
You own a small manufacturing business that produces widgets. You have spent $300,000 acquiring the
fixed assets you need to produce widgets. Each widget costs you $3 to make and they sell for $18 each, so
your variable cost is 16.7% of the overall revenue.
At your current level of operating leverage, how many widgets must you sell to break even?
26,667
50,100
16,667
20,000
CONCEPT
Thinking About Operating Leverage
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2
Company A
Company B
Market Value of Equity
$100,000
$200,000
Market Value of Debt
$300,000
$200,000
Cost of Equity
10%
12%
