If a Firm Has Low Fixed Costs Relative to All

question 34

Multiple Choice

If a firm has low fixed costs relative to all other firms in the same industry, a large change in sales volume (either up or down) would have:

• A)a smaller change in EBIT for the firm versus the other firms.
• B)no effect in any way on the firms as volume does not effect fixed costs.
• C)a decreasing effect on the cyclical nature of the business.
• D)a larger change in EBIT for the firm versus the other firms.
• E)None of the above.

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Definitions:

Classified Balance Sheet

A balance sheet that organizes assets and liabilities into categories such as current, fixed, and intangible assets, and current and long-term liabilities.

Current Liabilities

Short-term financial obligations that are due within one year or within the normal operating cycle, such as accounts payable and short-term loans.

Long-term Liabilities

Debts or obligations that are due to be paid or settled beyond one year or the normal operating cycle of a business.

Current Ratio

A financial metric used to evaluate a company's ability to pay short-term obligations with its short-term assets.