The fiXed Cost of a Securities Trade

question 164

Multiple Choice

The fixed cost of a securities trade:

• A) Will affect a firm with an average trade value of $10,000 less than a firm with an average trade value of $100,000.
• B) Has more bearing on the target cash balance as the number of trades increases.
• C) Is normally minimal so it can be ignored when trying to establish optimal cash balance levels.
• D) Has more impact on firms following a flexible cash policy than a firm following a restrictive cash policy.
• E) Varies with the average number of cheques processed in any stated period of time.

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Definitions:

Operating Leverage

Operating leverage refers to the degree to which a company can increase operating income by increasing sales, highlighting the impact of fixed versus variable costs.

Operating Income

The profit realized from a business's operational activities, calculated before interest and taxes.

Operating Leverage

A measure of how revenue growth translates into growth in operating income, indicating the degree to which a company can increase profit by increasing sales.

Variable Costs

Charges that shift in alignment with the volume of production or service tasks.