A Shift Toward More Fixed Costs Increases Business Risk, Which

question 138

True/False

A shift toward more fixed costs increases business risk, which in turn causes earnings before interest and taxes to increase by less for a given increase in sales.

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Definitions:

Semiannually

Occurring twice a year, or every six months.

Bond Interest Expense

The cost incurred by an entity for borrowing funds through issuing bonds, payable to bondholders as interest.

Semiannual

Occurring twice a year; every six months.

Par Value

The face value of a bond or stock, as stated by the issuing company, which often bears no relation to its market value.