A Cost Structure Which Relies More Heavily on Fixed Costs

question 28

Multiple Choice

A cost structure which relies more heavily on fixed costs makes the company

• A) more sensitive to changes in sales revenue.
• B) less sensitive to changes in sales revenue.
• C) either more or less sensitive to changes in sales revenue, depending on other factors.
• D) have a lower break-even point.

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Definitions:

Dividend Growth Rate

An annualized percentage rate of growth of a company's dividend payments to shareholders, indicating the company's commitment to increasing shareholder value over time.

Component Costs of Capital

The individual expenses associated with the different sources of capital, such as the cost of equity, debt, and preferred stock.

Market-Determined Variables

Economic factors such as prices, wages, and interest rates that are decided by the forces of supply and demand in a free market.

Required Returns

The minimum profit or yield that investors demand for investing in an asset, considering the risk involved.