A Firm Is Operating at 90 Percent of Capacity

question 68

Multiple Choice

A firm is operating at 90 percent of capacity. This information is primarily needed to project which one of the following account values when compiling pro forma statements?

• A)sales
• B)costs of goods sold
• C)accounts receivable
• D)fixed assets
• E)long-term debt

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Definitions:

EBIT

Earnings Before Interest and Taxes, a measure of a company's profit that includes all incomes and expenses except interest and income tax expenses.

ROCE

Return on Capital Employed; a measure of a company's profitability in relation to its capital, indicating how efficiently capital is being utilized to generate profits.

After Tax Cost

The net cost of an investment or financing option after taking into account the effects of taxes.

Financial Leverage

Applying borrowed resources to escalate the potential profits of an investment.