Which of the Following Statements Is Most Likely True If

question 31

Multiple Choice

Which of the following statements is most likely true if Red Inc.has an operating leverage of 2.0 while Blue Corp.has an operating leverage of 1.4?

• A) Red Inc.is selling its products for a higher sales price than Blue Corp.
• B) Red Inc.'s net income will be less sensitive to a change in sale volume than Blue Corp.
• C) Blue Corp.'s fixed costs in relation to variable costs are lower than Red Inc.'s.
• D) Blue Corp.has a lower contribution margin per unit than Red Inc.

---

Definitions:

Treasury Stock

Stocks that have been distributed and subsequently bought back by the issuing corporation, diminishing the number of shares available for trading on the public market.

Acquisition Cost

The total cost associated with acquiring an asset, including the purchase price and all related expenses necessary to bring the asset to a condition ready for its intended use.

Authorized Stock

Authorized stock is the maximum number of shares that a corporation is legally permitted to issue, as specified in its articles of incorporation.

Issued Stock

The total number of shares that a company has sold to investors and are currently outstanding.