Illinois Tool Company's (ITC) Fixed Operating Costs Are $1,260,000 and Its

question 34

Multiple Choice

Illinois Tool Company's (ITC) fixed operating costs are $1,260,000 and its variable cost ratio (i.e., variable costs as a fraction of sales) is 0.70.The firm has $3,000,000 in bonds outstanding at an interest rate of 8 percent.ITC has 30,000 shares of $5 preferred stock and 150,000 shares of common stock outstanding.ITC is in the 50 percent corporate income tax bracket.Forecasted sales for next year are $9 million.What is ITC's degree of combined leverage at a sales level of $10 million?

• A)2.00
• B)1.72
• C)2.50
• D)1.25

Recognize the impact of consumer protection law on online transactions.

Understand the basic concept of asymmetric information and its impact on market transactions.

Recognize adverse selection and moral hazard problems in various markets.

Identify mechanisms like market signaling and government intervention to mitigate asymmetric information issues.

---

Definitions:

Social Exchange Model

A model which takes an economic perspective and assumes that people approach relationships with an underlying motivation of self-interest.

Comparison Level

The expectation of how rewarding a relationship should be.

Fatuous Love

A type of love that is typified by commitment based on passion without the stabilizing influence of intimacy.

Triangular Model

A psychological theory, often associated with love, which posits that intimate relationships are comprised of three components: intimacy, passion, and commitment.