FIN 3320 - Quiz 2

c. net operating income equals zero.

By definition, a firm's operating breakeven point represents the level of production and sales at which:​ a. fixed variable costs equal operating revenue. b. additional funds needed equal zero. c. net operating income equals zero. d. variable costs equal operating revenue. e. the cost of equity equals the cost of debt.

c. ​increasing the contribution margin.

Everything else equal, a firm can reduce its operating breakeven point by:​ a. increasing its fixed costs. b. increasing the variable cost per unit. c. increasing the contribution margin. d. decreasing the selling price of the product that is sold. e. decreasing the earnings per share.

a. 200 cans

Pearson Collections (PC) sells one-pound cans of coffee for $25 each. The variable cost to produce each can is $17.50, and fixed operating costs are $1,500. PC normally sells 30,000 pounds of coffee each year, has an interest expense equal to $300, and its marginal tax rate is 40 percent. Given this information, what is PC's operating breakeven point? a. 200 cans b. 60 cans c. 86 cans d. 1,200 cans e. 4,000 cans

d. ​The higher the DOL, the closer the firm is to its operating breakeven point.

Which of the following is true of the degree of operating leverage (DOL)?​ a. The higher the DOL, the closer the firm is to its financial breakeven point. b. The higher the DOL, the higher the percentage increase in the sales. c. The lower the DOL, the higher the operating risk of the firm. d. The higher the DOL, the closer the firm is to its operating breakeven point. e. The higher the DOL, the lower the financial risk of the firm.

d. normally lead to a reduction in its fixed assets turnover ratio.

Which of the following statements is CORRECT? As a firm increases the operating leverage used to produce a given quantity of output, this will a. normally lead to an increase in its fixed assets turnover ratio. b. normally lead to a decrease in its business risk. c. normally lead to a decrease in the standard deviation of its expected EBIT. d. normally lead to a decrease in the variability of its expected EPS. e. normally lead to a reduction in its fixed assets turnover ratio.

b. ​It involves determining the point at which revenue from sales equals operating costs.

Which of the following statements is true of operating breakeven analysis?​ a. It involves determining the level of production and sales at which net operating income is equal to one. b. It involves determining the point at which revenue from sales equals operating costs. c. It involves the analysis of the level of production and sales at which financing costs are recovered. d. It involves determining the operating income the firm needs to just cover all of its financing costs. e. It involves the analysis of the interest payments to bondholders and the dividend payments to preferred stockholders.