When Management Selects Production Technologies That Include a High Proportion

question 34

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:

Equity Interest

An ownership interest in a company, represented by stock or shares, entitling the holder to a claim on assets and profits.

Cash Dividend

A payment made by a company out of its profits to its shareholders in the form of cash.

Net Income

The final profit amount for a company after subtracting all operational costs and taxes from revenue.

Equity Securities

Financial instruments representing ownership in a corporation, such as stocks, which provide a claim on part of the company's assets and earnings.