BUS 320 Chapter 5 – Flashcards
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Financial leverage emphasizes the impact of using debt in the business.
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True
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The contribution margin is equal to price per unit minus total costs per unit.
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False
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Use of financial leverage must consider risk, not just maximizing profit.
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True
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Managers who are risk averse and uncertain about the future would most likely minimize combined leverage.
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True
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Cash breakeven analysis eliminates the depreciation expense and other non-cash charges from fixed costs.
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True
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The closer a firm is to its break-even point, the lower the degree of operating leverage will be.
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False
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Financial leverage primarily affects the left-hand side of the balance sheet.
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False
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Operating income is not the same thing as EBIT.
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False
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Firms with cyclical sales should employ a high degree of leverage.
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False
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An example of an adjustment for a cash break-even analysis would be adding back increases in accounts receivable.
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False
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Financial leverage break-even occurs when return on total assets is equal to the cost of borrowed funds.
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True
