Everything Else Equal, in Which of the Following Situations Will

question 14

Multiple Choice

Everything else equal, in which of the following situations will a firm's degree of operating leverage (DOL) increase? Assume the firm currently generates a positive net operating income. 

• A)Sales increase substantially.
• B)The firm issues preferred stock.
• C)Fixed costs are decreased.
• D)The firm takes advantage of quantity discounts for the first time.
• E)The firm's sales move closer to its operating breakeven point.

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Definitions:

Excess Cash

Refers to the amount of cash a company holds that is beyond what it requires for day-to-day operations and investments.

Dividend

The distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders. Dividends can be issued as cash payments, as shares of stock, or other property.

Share Repurchase

A company's buyback of its own shares from the marketplace, reducing the number of outstanding shares and potentially increasing share value.

Dividend Per Share

The amount of dividend that a company pays out to each shareholder for each share they own.