The Best Way to Adjust for the Presence of Fixed

question 138

Multiple Choice

The best way to adjust for the presence of fixed costs when using the simplified approach for pro forma income statement preparation is ________.

• A) to proportionately vary the fixed costs with the change in sales
• B) to adjust for projected fixed-asset outlays
• C) to disproportionately vary the costs with the change in sales
• D) to break the firm's historical costs into fixed and variable components

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Definitions:

Current Yield

The annual interest payment of a bond divided by its current market price, used to compare the return on investment of different bonds.

Coupon Bond

A debt security that pays the holder a fixed interest rate (the coupon) periodically until maturity, at which point the principal is repaid.

Basis Point

A unit of measure used in finance to describe the percentage change in the value or rate of a financial instrument, equal to 1/100th of 1%.

Bond Prices

The cost or value of a bond, which can fluctuate based on interest rates, credit quality of the issuer, and other factors.