Which of the Following Is Not a Condition Under Which

question 37

Multiple Choice

Which of the following is not a condition under which a prudent manager would accept some risk in financing?

• A) Predictable cash-flow patterns
• B) Inventory is highly perishable
• C) Price of inventory is stable
• D) Easy access to capital markets

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Definitions:

Break-even Point

The level of production or sales at which total revenues equal total expenses, resulting in neither profit nor loss.

Margin of Safety

The difference between actual or projected sales and the break-even point, indicating the cushion a business has before it incurs a loss.

Operating Leverage

A measure of how sensitive net operating income is to a given percentage change in dollar sales.

Net Operating Income

The income derived from a firm's core business operations, not including taxes and interest expenses.