Homework Answers
The correct answer is
Less risk is assumed than in a highly leveraged firm
Explanation
If a company has low operating leverage, it means company has very minimal fixed cost, due to which it has low break even point as compared to highly leveraged firm. That is why companies with low operating leverage are considered less risky.
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In a company with low operating leverage, less risk is assumed than in a highly leveraged...
way to assess financial risk that a company should be aware of is the company,s operating...
way to assess financial risk that a company should be aware of is the company,s operating leverage . A higly - leveraged company has relatively ----------- fixed costs and -------- variable costs . such a firm is ------------ because small changes in volome lead to --------- changes in net income
5. Highly leveraged firms have higher ROE than lower leveraged firms. 6. All things equal, the...
5. Highly leveraged firms have higher ROE than lower leveraged firms. 6. All things equal, the higher a company's inventory turnover rate, the better. 7. All else being equal, a higher financial leverage will increase a company's debt rating and decrease the interest rate it must pay. 8. Vertical analysis examines changes in financial data across time. 9. A current ratio greater than 1.0 is generally desirable for a company. 10. Return on assets can be disaggregated into profit margin...
Integrative-Leverage and risk Firm R has sales of 97,000 units at $2.03 per unit, variable operating costs of $1.67 per unit, and fixed operating costs of $6,070. nterest is $10,080 per year. Firm W...
Integrative-Leverage and risk Firm R has sales of 97,000 units at $2.03 per unit, variable operating costs of $1.67 per unit, and fixed operating costs of $6,070. nterest is $10,080 per year. Firm W has sales of 97,000 units at $2.56 per unit, variable operating costs of $0.97 per unit, and fixed operating costs of $62,400 Interest is $17,200 per year. Assume that both firms are in the 40% tax bracket. a. Compute the degree of operating, financial, and total...
all else being equal, a company with a high operating leverage will have All else being equal, a company with a hig...
all else being equal, a company with a high operating leverage
will have
All else being equal, a company with a high operating leverage will have relatively low risk. relatively high contribution margin ratio. relatively high variable costs. relatively low fixed costs.
Operating Leverage. High operating leverage means: The company has relatively high fixed costs. The company has...
Operating Leverage. High operating leverage means: The company has relatively high fixed costs. The company has relatively low fixed costs. The company will have to sell fewer units than a comparable company with low operating leverage to break even. The company will have to sell more units than a comparable company with low operating leverage to break even. Both (2) and (3) are correct. Both (1) and (4) are correct.
Which of the following statements regarding Operating Leverage is true? The degree of operating leverage is...
Which of the following statements regarding Operating Leverage is true? The degree of operating leverage is the same as the Margin of Safety percentage Organizations with high operating leverage incur more risk of loss when sales decline. The degree of operating leverage is the extent to which the cost function is made up of variable costs. Is measured as Earnings/Contribution Margin
ACCT 2301 Operating Leverage Handout #8 d cot ha Contribution margin income statements for two competing...
ACCT 2301 Operating Leverage Handout #8 d cot ha Contribution margin income statements for two competing companies are provided below: Anthe Alpha Cempany Revenue Less variable costs Contribution margin Less fixed costs Net income Gamma Company $500,000 200.000 $300,000 270.000 $30,000 $500,000 350,000 $150,000 120.000 $30,000 Required: 1) Show each company's cost structure by inserting the percentage of the company's revenue represented by each item on the contribution income statement: Alpha Company $500,000 200,000 $300,000 Gemma Company $s00.000 350,000 $150,000...
High operating leverage means (choose one): (a) The company has relatively low fixed costs. (b) The...
High operating leverage means (choose one): (a) The company has relatively low fixed costs. (b) The company has relatively high fixed costs. (c) The company will have to sell more units than a comparable company with low operating leverage to break even. (d) The company will have to sell fewer units than a comparable company with low operating leverage to break even. (e) Both (b) and (c) are correct. (f) Both (a) and (d) are correct.
Operating Leverage Income statements for two different companies in the same industry are as follows: Trimax, Inc. Quintex, Inc. $875,000 175,000 $700,000 630,000 $70,000 Sales $700,000 350,000...
Operating Leverage Income statements for two different companies in the same industry are as follows: Trimax, Inc. Quintex, Inc. $875,000 175,000 $700,000 630,000 $70,000 Sales $700,000 350,000 $350,000 280,000 $70,000 Less: Variable costs Contribution margin Less: Fixed costs Operating income Required: 1. Compute the degree of operating leverage for each company. Trimax Quintex 2. Compute the break-even point in dollars for each company Trimax, Inc. Quintex, Inc. Why is the break-even point for Quintex, Inc., higher? $700,000 350,000 $350,000 $875,000...
Operating Leverage Beck Inc. and Bryant Inc. have the following operating data: Beck Inc. Bryant Inc....
Operating Leverage Beck Inc. and Bryant Inc. have the following operating data: Beck Inc. Bryant Inc. Sales $374,100 $1,122,000 Variable costs (150,100) (673,200) Contribution margin $224,000 $448,800 Fixed costs (154,000) (261,800) Operating income $70,000 $187,000 a. Compute the operating leverage for Beck Inc. and Bryant Inc. If required, round to one decimal place. Beck Inc. Bryant Inc. b. How much would operating income increase for each company if the sales of each increased by 15%? If required, round answers to...
5. Highly leveraged firms have higher ROE than lower leveraged firms. 6. All things equal, the higher a company's inventory turnover rate, the better. 7. All else being equal, a higher financial leverage will increase a company's debt rating and decrease the interest rate it must pay. 8. Vertical analysis examines changes in financial data across time. 9. A current ratio greater than 1.0 is generally desirable for a company. 10. Return on assets can be disaggregated into profit margin...
Integrative-Leverage and risk Firm R has sales of 97,000 units at $2.03 per unit, variable operating costs of $1.67 per unit, and fixed operating costs of $6,070. nterest is $10,080 per year. Firm W has sales of 97,000 units at $2.56 per unit, variable operating costs of $0.97 per unit, and fixed operating costs of $62,400 Interest is $17,200 per year. Assume that both firms are in the 40% tax bracket. a. Compute the degree of operating, financial, and total...
all else being equal, a company with a high operating leverage
will have
All else being equal, a company with a high operating leverage will have relatively low risk. relatively high contribution margin ratio. relatively high variable costs. relatively low fixed costs.
ACCT 2301 Operating Leverage Handout #8 d cot ha Contribution margin income statements for two competing companies are provided below: Anthe Alpha Cempany Revenue Less variable costs Contribution margin Less fixed costs Net income Gamma Company $500,000 200.000 $300,000 270.000 $30,000 $500,000 350,000 $150,000 120.000 $30,000 Required: 1) Show each company's cost structure by inserting the percentage of the company's revenue represented by each item on the contribution income statement: Alpha Company $500,000 200,000 $300,000 Gemma Company $s00.000 350,000 $150,000...
Operating Leverage Income statements for two different companies in the same industry are as follows: Trimax, Inc. Quintex, Inc. $875,000 175,000 $700,000 630,000 $70,000 Sales $700,000 350,000 $350,000 280,000 $70,000 Less: Variable costs Contribution margin Less: Fixed costs Operating income Required: 1. Compute the degree of operating leverage for each company. Trimax Quintex 2. Compute the break-even point in dollars for each company Trimax, Inc. Quintex, Inc. Why is the break-even point for Quintex, Inc., higher? $700,000 350,000 $350,000 $875,000...
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