The Degree of Pretax Cash Flow Operating Leverage Provides Us

question 21

Multiple Choice

The degree of pretax cash flow operating leverage provides us with:

• A) a measure of how sensitive pretax operating cash flows are to changes in revenue.
• B) a measure of how sensitive accounting operating profits are to changes in revenue.
• C) a measure of how sensitive NOPAT is to changes in tax rates.
• D) a measure of how sensitive accounting operating profits are to changes in tax rates.

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Definitions:

Single-Step Income Statement

A simplified financial statement that calculates net income by subtracting expenses from revenues in one step.

Net Income

The final amount a company keeps as profit after paying off all expenses and taxes from its revenues.

FOB Shipping Point

A term in shipping agreements where the buyer is responsible for the goods and their transportation cost as soon as they leave the seller's premises.

Ownership of Merchandise

The legal right or title to goods and inventory held by a business for sale.