Which of the Following Situations Would Intensify the Business Risk

question 40

Multiple Choice

Which of the following situations would intensify the business risk borne by a firm's common stockholders?

• A)The firm issues new fixed-income securities, such as bonds, to raise funds to support operations.
• B)The firm takes actions to stabilize its annual sales.
• C)The firm starts purchasing from a supplier that allows it to renegotiate raw materials costs every six months.
• D)The firm reduces its use of fixed operating costs.
• E)The firm issues new common stock to raise funds.

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Definitions:

Inventory

The overall quantity of products and materials in possession of a company, intended for future sale or to be used in manufacturing.

Variable Costing

Variable Costing is a costing method that only includes variable costs (direct materials, direct labor, and variable manufacturing overhead) in product costs, excluding fixed manufacturing overhead.

Contribution Margin

The amount by which sales revenue exceeds variable costs of production, indicating how much contributes to covering fixed costs and generating profit.

Operating Income

A measure of a company's profitability from its regular business operations, excluding income and expenses from unusual or non-operational activities.