If a Firm Has Low Fixed Costs Relative to All

question 32

Multiple Choice

If a firm has low fixed costs relative to all other firms in the same industry,a large change in sales volume (either up or down) would have:

• A) a smaller change in EBIT for the firm versus the other firms.
• B) no effect in any way on the firms, as volume does not affect fixed costs.
• C) a decreasing effect on the cyclical nature of the business.
• D) a larger change in EBIT for the firm versus the other firms.
• E) None of these.

---

Definitions:

Unearned Revenue

Income received by an entity for services not yet provided or goods not yet delivered, reflecting a liability until fulfilled.

Common Stock

An equity security that signifies part ownership in a company, providing the owner with the right to vote and a portion of the company's earnings through dividends.

Credit

A financial term describing the ability of a buyer to receive goods or services before payment, based on the trust that payment will be made in the future.

Stockholders' Equity

The ownership interest of shareholders in a corporation, represented by the company's assets minus its liabilities.