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i Which of the following statements is most FALSE? a. In general, as a firm begins to add debt to its capital structure, the firm's EPS will improve, but the standard deviation of EPS will increase. b. Lower operating leverage generally permits a firm to use more debt in their capital structure. c. The capital structure that maximizes the firm's stock price is also the capital structure that minimizes WACC. d. The more debt a firm has in its capital structure, the higher that firm's financial risk will be. e. The higher a firm's tax rate, the less attractive debt capital will be to that firm.
ii Which of the following statements is most FALSE? a. If a company does not have any debt, its DFL is 1. b. When a company is operating just barely above its breakeven point, the degree of operating leverage will most likely be low. c. The degree to which a firm employs financial leverage will affect its expected earnings per share and the riskiness of these earnings. d. Business risk varies from one industry to another and also among firms in a given industry. e. The higher a firm's degree of operating leverage, the higher its breakeven point tends to be.
iii The Cherry Corporation produces tea kettles, which it sells for $14 each. Fixed costs are $450,000 for up to 400,000 units of output. Variable costs are $6 per kettle, and the tax rate is 40 percent. What is the company's breakeven point in terms of sales dollars? a. $787,500 b. $337,500 c. $75,000 d. $56,250 e. $32,143
iv Landua, Inc.'s operating income is $380,000, the company's interest expense is $80,000, and its tax rate is 40 percent. If the company were able to increase its operating income by 12 percent, what would be the percentage increase in earnings per share? a. 13.13 percent b. 15.20 percent c. 17.41 percent d. 19.48 percent e. None of the above.
v Rush & Todd, Inc. currently has $4 million in sales. Its variable costs equal 30 percent of
ii Which of the following statements is most FALSE? a. If a company does not have any debt, its DFL is 1. b. When a company is operating just barely above its breakeven point, the degree of operating leverage will most likely be low. c. The degree to which a firm employs financial leverage will affect its expected earnings per share and the riskiness of these earnings. d. Business risk varies from one industry to another and also among firms in a given industry. e. The higher a firm's degree of operating leverage, the higher its breakeven point tends to be.
iii The Cherry Corporation produces tea kettles, which it sells for $14 each. Fixed costs are $450,000 for up to 400,000 units of output. Variable costs are $6 per kettle, and the tax rate is 40 percent. What is the company's breakeven point in terms of sales dollars? a. $787,500 b. $337,500 c. $75,000 d. $56,250 e. $32,143
iv Landua, Inc.'s operating income is $380,000, the company's interest expense is $80,000, and its tax rate is 40 percent. If the company were able to increase its operating income by 12 percent, what would be the percentage increase in earnings per share? a. 13.13 percent b. 15.20 percent c. 17.41 percent d. 19.48 percent e. None of the above.
v Rush & Todd, Inc. currently has $4 million in sales. Its variable costs equal 30 percent of