Missouri Southern State University

ECON 350

Financial Management

Chapter 13 Quiz

1)The firm's___________is the level of sales necessary to cover all operating costs, i.e., the point at which EBIT = $0.

1. 1. cash break-even point
   2. financial break-even point

C) operating break-even point

D) total break-even point

 

2. Which of the following is NOT a variable cost?
   1. materials used

B) rent

3. delivery costs
4. direct labor

 

3. If a firm's fixed operating costs decrease, the firm's operating break-even point will

A) decrease.

2. increase.
3. remain unchanged.
4. change in an undetermined direction.

 

4. A firm has fixed operating costs of $150,000, total sales of $1,500,000, and total variable costs of $1,275,000. The firm's operating break-even point in dollars is  .

A) $150,000

B) $176,471

C) $1,000,000 D) $1,425,000

 

5. The three basic types of leverage are:
   1. operating, production, and financial.
   2. operating, production, and total.
   3. production, financial, and total.

D) operating, financial, and total.

 

6. The higher financial leverage causes                          to increase more for a given increase in                       .
   1. EBIT, sales
   2. EPS, sales

C) EPS, EBIT

D) EBIT, EPS

 

7. Generally,                          in leverage result in                          return and                         risk.

1. 1. increases, decreased, increased
   2. increases, decreased, decreased

C) increases, increased, increased

D) decreases, increased, decreased

 

 

 

8. The firm's                           is the mix of long-term debt and equity utilized by the firm, which may significantly affect its value by affecting return and risk.
   1. dividend policy
   2. capital budget

C) capital structure

D) working capital

 

9.                           risk is the risk of being unable to cover operating costs.

A) Business

2. Financial
3. Leverage
4. Total

 

10. According to the traditional approach to capital structure, the value of the firm will be maximized when

1. the financial leverage is maximized.
2. the cost of debt is minimized.

C) the weighted average cost of capital is minimized.

4. the dividend payout is maximized.