Question

27. Which of the following is a key determinant of operating leverage? Level of debt Physical location of production facilities. Cost of debt. Technology Capital structure, 28. Which of the following is a key determinant of financial leverage? Level of debt. Technology Labor costs. Amount of fixed assets used by the firm. Variable cost of goods sold. 29. Which of the following is (are) typically part of the cash budget? Payments lag. Payment for plant construction Cumulative cash All of the above. Only answers a and c above. 30. The financial breakeven point for a firm is defined as the level of sales: EBIT. sales: gross profit. EPS: sales. gross profit: EBIT. EBIT: EPS. that produces equal to 2

Answer 1

|technology d 27 Operating leverahge is the tradeoff between the variable and fixed costs. Hence the techonolgy used by the company plays an important role while determining the nature of costs. Hence technology is the key determinant of operating leverage. Level of debt 28 a Financial leverage indicates how effectively the borrowed funds are being utilized to increase production volume, sales and earnings. Financial leverage Total debt/Shareholders equity Hence level of debt is the ket determinant of the financial leverage

all of the above d 29 Payments lag helps in finding out when the payments to be made i.e cash outflow. Payment for plant construction is also cash outflow. Cummulative cash flow is the sum of the all cash flows i.e cash inflows and outflows. Hence all of the above are part of the cash budget ЕBIT ;B ЕPS 30 е Financial break even point is a level of EBIT that provides zero net income or zero EPS

Answer 2

capital structure