When Management Selects Production Technologies That Include a High Proportion

question 56

Multiple Choice

When management selects production technologies that include a high proportion of fixed costs, they:

• A)decrease their DOL.
• B)increase their DOL.
• C)decrease their NPV break-even level of sales.
• D)reduce the NPV of their cash flows.

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Definitions:

Acquisition

The process of obtaining ownership or control of another company or business entity.

Deferred Tax Liability

It's a tax obligation that arises from income already earned and recorded for accounting purposes, but payment is deferred to the IRS until a future date.

Subsidiary

An entity that is controlled by a higher entity, usually through majority shareholding, and is included in the financial statements of the controlling entity through consolidation.

Investment

The allocation of resources, usually financial, in expectation of a future return or profit.