Two Firms, STM and VPL, Have the Same Contribution Margin

question 60

Multiple Choice

Two firms, STM and VPL, have the same contribution margin however VPL's fixed costs (including interest) are greater than STM's.The sales levels and income tax rates of the two firms are the same.We would expect:

• A)VPL's income to have the same variability as STM
• B)VPL's income to be less variable than STM
• C)VPL's income to be more variable than STM
• D)Can't determine with the information provided

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Definitions:

Short-Term Debt

Borrowings that are due to be paid back within a short period, typically less than one year.

Long-Term Equities

Investment securities that represent ownership in a company or corporation and are held for a period longer than one year.

Maturity Matching

A financial strategy that entails matching the duration of assets and liabilities to minimize risk associated with cash flow mismatches.

Project Duration

The total time required to complete a project from start to finish.