Week 03 QuizWelcome to the Week 3 Quiz. Only one attempt will be accepted. If you need to leave the...

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Week 03 QuizWelcome to the Week 3 Quiz. Only one attempt will be accepted. If you need to leave the quiz, you may do so by closing your browser; however, your progress will not be saved. Once you hit SUBMIT, your quiz will be complete. Each question will go 0.125% towards your final grade. Good luck!										Question #1				(1 point)							A firm sells 70,000 units, and their fixed costs are $60,000, variable cost per unit is $2.20, and the price per unit is $3.20. If a firm has $3,000 in interest payments, what is the firm's degree of combined leverage?										7.5										10.0										12.5										15.0																	Question #2				(1 point)							Which of the following is a consequence of level production in a company that experiences seasonal fluctuations in sales?										Current assets fluctuate up and down when sales and production are not equal										Permanent current assets tend to decrease as companies experience growth while fixed assets remain steady										Companies must take out loans during peak sales months and pay them back during slow months										All of the above are consequences of level production																	Question #3				(1 point)							Leverage magnifies returns as volume increases as well as magnifies losses as volume decreases.										False										True																	Question #4				(1 point)							An aggressive, risk-oriented firm is more likely to borrow long term and and maintain relatively high levels of liquidity, hoping to increase profits.										True										False																	Question #5				(1 point)							When comparing the potential risk of multiple companies, the firms with higher coefficients of variance have higher business risk.										True										False																	Question #6				(1 point)							Which of the following statements are potential reasons to explain the shape of the yield curve?										Short-term securities have greater liquidity, therefore higher rates must be offered to long-term bond buyers										Various financial institutions must invest in whichever security best matches their needs										Long-term rates reflect the average of short-term expected rates over the long-term security’s life span										All of the above statements partially explain the shape of the yield curve																	Question #7				(1 point)							When interest rates are high and expected to decline, the financial manager generally tries to borrow short term										True										False																	Question #8				(1 point)							Bluthe Industries manufactures a line of miniature model homes. Their average selling price is $400 per unit with a variable cost of $240 per unit. Bluthe's annual fixed expense is $800,000 per year. Calculate the company's EBIT at 6,000 units.										$160,000										$480,000										$800,000										$0																	Question #9				(1 point)							As a firm's debt level decreases, their interest payments increase which increase the company's degree of financial leverage.										False										True																	Question #10				(1 point)							Johnny Corp. faces a financing decision with their current assets. Two plans have been submitted to address their needs. Plan A would require using short term financing to pay all of their current assets. Plan B would instead require long-term financing to pay a large majority of their current assets. There is a 70% chance short-term interest rates will remain steady throughout the year, but management feels there is a 30% chance there will soon be a tight money period and they could rise significantly. If interest rates remain unchanged, plan A is expected to leave the company with a $7,200 higher earnings after taxes than plan B. However, if interest rates increase, plan A is expected to leave the company with $28,800 lower earnings after taxes when compared to plan B. Which plan should Johnny Corp. go with and why?										Plan A – There is an expected value of return of $1,800 for plan A versus plan B										Plan B – There is a negative expected value of return of -$3,600 for plan A versus plan B										Plan A – There is an expected value of return of $3,600 for plan A versus plan B										Plan B – There is a negative expected value of return of -$1,800 for plan A versus plan B																	Question #11				(1 point)							Bluthe Industries manufactures a line of miniature model homes. Their average selling price is $400 per unit with a variable cost of $240 per unit. Bluthe's annual fixed expense is $800,000 per year. What is the break-even point in units for the company?										5,000										4,000										2,000										3,000																	Question #12				(1 point)							The responsiveness of a firm's earnings before interest and taxes (EBIT) to fluctuations in sales is referred to as										managerial leverage										combined leverage										financial leverage										operating leverage																	Question #13				(1 point)							A firm sells 70,000 units, and their fixed costs are $60,000, variable cost per unit is $2.20, and the price per unit is $3.20. Which statement best describes the firm's degree of operating leverage?										A one percent increase in volume will produce a 5% decrease in operating income										A one percent increase in volume will produce a 5% increase in operating income										A one percent increase in volume will produce a 7% increase in operating income										A one percent increase in volume will produce a 7% decrease in operating income																	Question #14				(1 point)							In most companies, working capital management concentrates on the following working capital actions except										setting minimum levels for cash										using notes payable to assure adequate cash availability										controlling inventory by setting inventory levels and controls										investing all excess cash in long-term debt instruments																	Question #15				(1 point)							An increased amount of working capital results in increases in both profitability and risk.										False										True																	Question #16				(1 point)							A firm sells 70,000 units, and their fixed costs are $60,000, variable cost per unit is $2.20, and the price per unit is $3.20. Which statement best describes the firm's position?										The firm is earning a profit of $10,000										The firm is breaking even										The firm is earning a profit of $15,000										The firm is operating at a loss of $15,000							Logout

Robert · Accepted Answer

Week 03 Quiz 
Welcome to the Week 3 Quiz. Only one attempt will be accepted. If 
you need to leave the quiz, you may do so by closing your browser; 
however, your progress will not be saved. Once you hit SUBMIT, your 
quiz will be complete. Each question will go 0.125% towards your final 
grade. Good luck! 
Question #1 (1 point) 
A firm sells 70,000 units, and their fixed costs are $60,000, variable cost per unit is 
$2.20, and the price per unit is $3.20. If a firm has $3,000 in interest payments, 
what is the firm's degree of combined leverage? 
 7.5 
 10.0 
 12.5
15.0 
 
Solution: 
 
 
Question #2 (1 point) 
Which of the following is a consequence of level production in a company that 
experiences seasonal fluctuations in sales? 
 Current assets fluctuate up and down when sales and production are not equal 
 
Permanent current assets tend to decrease as companies experience growth while 
fixed assets remain steady 
 
Companies must take out loans during peak sales months and pay them 
back during slow months 
 All of the above are consequences of level production 
 
Question #3 (1 point) 
Leverage magnifies returns as volume increases as well as magnifies losses as 
volume decreases. 
 False 
 True 
 
Question #4 (1 point) 
An aggressive, risk-oriented firm is more likely to borrow long term and and maintain 
relatively high levels of liquidity, hoping to increase profits. 
 True 
 False 
 
Question #5 (1 point) 
When comparing the potential risk of multiple companies, the firms with higher 
coefficients of variance have higher business risk. 
 True 
 False 
 
Question #6 (1 point) 
Which of the following statements are potential reasons to explain the shape of the 
yield curve? 
 
Short-term securities have greater liquidity,

Week 03 Quiz Welcome to the Week 3 Quiz. Only one attempt will be accepted. If you need to leave the quiz, you may do so by closing your browser; however, your progress will not be saved. Once you hit...

Answer To: Week 03 Quiz Welcome to the Week 3 Quiz. Only one attempt will be accepted. If you need to leave the...

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Question #1 (1 point)
A firm sells 70,000 units, and their fixed costs are $60,000, variable cost per unit is $2.20, and the price per unit is $3.20. If a firm has $3,000 in interest payments, what is the firm's degree of combined leverage?
	7.5
	10.0
	12.5
	15.0

Question #2 (1 point)
Which of the following is a consequence of level production in a company that experiences seasonal fluctuations in sales?
	Current assets fluctuate up and down when sales and production are not equal
	Permanent current assets tend to decrease as companies experience growth while fixed assets remain steady
	Companies must take out loans during peak sales months and pay them back during slow months
	All of the above are consequences of level production

Question #3 (1 point)
Leverage magnifies returns as volume increases as well as magnifies losses as volume decreases.
	False
	True

Question #4 (1 point)
An aggressive, risk-oriented firm is more likely to borrow long term and and maintain relatively high levels of liquidity, hoping to increase profits.
	True
	False

Question #5 (1 point)
When comparing the potential risk of multiple companies, the firms with higher coefficients of variance have higher business risk.
	True
	False

Question #6 (1 point)
Which of the following statements are potential reasons to explain the shape of the yield curve?
	Short-term securities have greater liquidity, therefore higher rates must be offered to long-term bond buyers
	Various financial institutions must invest in whichever security best matches their needs
	Long-term rates reflect the average of short-term expected rates over the long-term security’s life span
	All of the above statements partially explain the shape of the yield curve

Question #7 (1 point)
When interest rates are high and expected to decline, the financial manager generally tries to borrow short term
	True
	False

Question #8 (1 point)
Bluthe Industries manufactures a line of miniature model homes. Their average selling price is $400 per unit with a variable cost of $240 per unit. Bluthe's annual fixed expense is $800,000 per year. Calculate the company's EBIT at 6,000 units.
	$160,000
	$480,000
	$800,000
	$0

Question #9 (1 point)
As a firm's debt level decreases, their interest payments increase which increase the company's degree of financial leverage.
	False
	True

Question #10 (1 point)
Johnny Corp. faces a financing decision with their current assets. Two plans have been submitted to address their needs. Plan A would require using short term financing to pay all of their current assets. Plan B would instead require long-term financing to pay a large majority of their current assets. There is a 70% chance short-term interest rates will remain steady throughout the year, but management feels there is a 30% chance there will soon be a tight money period and they could rise significantly. If interest rates remain unchanged, plan A is expected to leave the company with a $7,200 higher earnings after taxes than plan B. However, if interest rates increase, plan A is expected to leave the company with $28,800 lower earnings after taxes when compared to plan B. Which plan should Johnny Corp. go with and why?
	Plan A – There is an expected value of return of $1,800 for plan A versus plan B
	Plan B – There is a negative expected value of return of -$3,600 for plan A versus plan B
	Plan A – There is an expected value of return of $3,600 for plan A versus plan B
	Plan B – There is a negative expected value of return of -$1,800 for plan A versus plan B

Question #11 (1 point)
Bluthe Industries manufactures a line of miniature model homes. Their average selling price is $400 per unit with a variable cost of $240 per unit. Bluthe's annual fixed expense is $800,000 per year. What is the break-even point in units for the company?
	5,000
	4,000
	2,000
	3,000

Question #12 (1 point)
The responsiveness of a firm's earnings before interest and taxes (EBIT) to fluctuations in sales is referred to as
	managerial leverage
	combined leverage
	financial leverage
	operating leverage

Question #13 (1 point)
A firm sells 70,000 units, and their fixed costs are $60,000, variable cost per unit is $2.20, and the price per unit is $3.20. Which statement best describes the firm's degree of operating leverage?
	A one percent increase in volume will produce a 5% decrease in operating income
	A one percent increase in volume will produce a 5% increase in operating income
	A one percent increase in volume will produce a 7% increase in operating income
	A one percent increase in volume will produce a 7% decrease in operating income

Question #14 (1 point)
In most companies, working capital management concentrates on the following working capital actions except
	setting minimum levels for cash
	using notes payable to assure adequate cash availability
	controlling inventory by setting inventory levels and controls
	investing all excess cash in long-term debt instruments

Question #15 (1 point)
An increased amount of working capital results in increases in both profitability and risk.
	False
	True

Question #16 (1 point)
A firm sells 70,000 units, and their fixed costs are $60,000, variable cost per unit is $2.20, and the price per unit is $3.20. Which statement best describes the firm's position?
	The firm is earning a profit of $10,000
	The firm is breaking even
	The firm is earning a profit of $15,000
	The firm is operating at a loss of $15,000