Suppose a Firm Increases the Operating Leverage Used to Produce

question 62

Multiple Choice

Suppose a firm increases the operating leverage used to produce a given quantity of output.What will this normally lead to?

• A)a decrease in the standard deviation of its expected EBIT
• B)a decrease in its business risk
• C)a decrease in the variability of its expected EPS
• D)a reduction in its fixed assets turnover ratio

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Definitions:

Education

A process of facilitating learning, or the acquisition of knowledge, skills, values, beliefs, and habits through various means such as teaching, training, storytelling, discussion, and directed research.

Regressive Tax

At the individual level, a tax whose average tax rate decreases as the taxpayer’s income increases. At the national level, a tax for which the average tax rate (= tax revenue/GDP) falls as GDP rises.

Income Tax Base

The total amount of income on which an individual or entity is required to pay income tax.

Sales Tax

A tax levied on the cost (at retail) of a broad group of products.