1) At the operating breakeven point ________ equals zero.a. variable operating costsb. sales revenuec. earnings before interest and taxesd. fixed operating costs2) Breakeven analysis is used by the firma. to determine the level of operations necessary to cover all operating costs.b. to evaluate the profitability associated with various levels of sales.c. Both A and B.d. none of the above3) If a firm s variable costs per unit increase the firm s operating breakeven point willa. decrease.b. remain unchanged.c. change in an undetermined direction.d. increase.4) Noncash charges such as depreciation and amortization ________ the firm s breakevenpoint.a. decreaseb. understatec. overstated. do not affect5) ________ leverage is concerned with the relationship between sales revenues andearnings before interest and taxes.a. Totalb. Financialc. Variabled. Operating6) The three basic types of leverage area. operating production and total.b. operating financial and total.c. production financial and total.d. operating production and financial.7) ________ is the potential use of fixed costs both operating and financial to magnifythe effect of changes in sales on the firm s earnings per share.a. Total leverageb. Debt servicec. Operating leveraged. Financial leverage8) With the existence of fixed operating costs an increase in sales will result in________ increase in EBIT.a. a less than proportionalb. a proportionalc. an equald. a more than proportional9) All of the following affect business risk EXCEPTa. cost stability.b. interest rate stability.c. revenue stability.d. operating leverage.10) A corporation has $5000000 of 10 percent bonds and $3000000 of 12 percentpreferred stock outstanding. The firm s financial breakeven (assuming a 40 percenttax rate) isa. $860000.b. $716000.c. $1400000.d. $1100000.11) Operating and financial constraints placed on a corporation by loan provision area. agency costs to the lender.b. interest rate costs to the fi rm.c. necessary to control the risk of the fi rm.d. agency costs to the fi rm.12) In order to enhance the wealth of stockholders and to send positive signals to themarket corporations generally raise funds using the following order:a. Equity retained earnings debt.b. Debt retained earnings equity.c. Retained earnings equity debt.d. Retained earnings debt equity.13) According to the traditional approach to capital structure the value of the firm will bemaximized whena. the financial leverage is maximized.b. the weighted average cost of capital is minimized.c. the cost of debt is minimized.d. the dividend payout is maximized.14) In the EBIT-EPS approach to capital structure risk is represented bya. shifts in the times-interest-earned ratio.b. shifts in the cost of debt capital.c. the slope of the capital structure line.d. shifts in the cost of equity capital.15) Nico Trading Company must choose its optimal capital structure. Currently the firmhas a 20 percent debt ratio and the firm expects to generate a dividend next year of$5.44 per share. Dividends are expected to remain at this level indefinitely. Stockholderscurrently require a 12.1 percent return on their investment. Nico is consideringchanging its capital structure if it would benefit shareholders. The firm estimatesthat if it increases the debt ratio to 30 percent it will increase its expected dividendto $5.82 per share. Again dividends are expected to remain at this new level indefinitely. However because of the added risk the required return demanded by stockholders will increase to 12.6 percent. Based on this information should Nico makethe change?a. Yesb. Noc. It s irrelevantd. Not enough information16) At the quarterly meeting of Tangshan Mining Corporation held on September 10ththe directors declared a $1.00 per share dividend for the firm s 100000 shares ofcommon stock outstanding. The net effect of declaring and paying this dividendwould be toa. increase total assets by $100000 and decrease stockholders equity by $100000.b. increase total assets by $100000 and increase stockholders equity by $100000.c. decrease total assets by $100000 and decrease stockholders equity by $100000.d. decrease total assets by $100000 and increase stockholders equity by $100000.17) Tangshan Mining has common stock at par of $200000 paid in capital in excessof par of $400000 and retained earnings of $280000. In states where the firm slegal capital is defined as the par value of common stock the firm could pay out________ in cash dividends without impairing its capital.a. $200000b. $880000c. $600000d. $68000018) Shareholder wealth considerations in the payment of dividends include all of thefollowing EXCEPTa. the criminal status of the firm s owners.b. the tax status of the firm s owners.c. the investment opportunities of the firm s owners.d. the potential dilution of ownership on behalf of the firm s owners.19) Gordon s bird-in-the-hand argument suggests thata. shareholders are generally risk averse and attach less risk to current dividends.b. dividends are irrelevant.c. firms should have a 100 percent payout policy.d. the market value of the firm is unaffected by dividend policy.20) A firm that has a large percentage of ________ investors may pay out a lower percentageof its earnings as dividends.a. wealthyb. businessc. middle-incomed. pension fund21) A firm has current after-tax earnings of $1000000 and has declared a cash dividendof $400000. The firm s dividend payout ratio isa. 4.0 percent.b. 2.0 percent.c. 2.5 percent.d. 40 percent.22) The advantage of using the low-regular-and-extra dividend policy is thata. cyclical shifts in earnings may be avoided.b. the extra dividend may become a regular event.c. the firm avoids giving the shareholders false hopes.d. if the firm s earnings drop so does the dividend payment.23) Mr. R. owns 20000 shares of ABC Corporation stock. The company is planning toissue a stock dividend. Before the dividend Mr. R. owned 10 percent of the outstandingstock which had a market value of $200000 or $10 per share. Upon receivingthe 10 percent stock dividend the value of his shares isa. $210000.b. $200000.c. $220000.d. greater but cannot be determined.24) The accounting in a stock split will transfer fundsa. from the Retained Earnings account to the Paid in Capital account.b. from the Common Stock and Paid in Capital accounts to the Retained Earnings account.c. from the Paid in Capital account to the Retained Earnings account.d. from the Retained Earnings account to the Preferred Stock account.e. none of the above25) When purchasing outstanding shares of common stock a firm can utilize all of the followingmethods EXCEPTa. a tender offer at a specified price.b. a purchase on the open market at market prices.c. a tender offer at varying prices.d. by purchasing a large block on a negotiated basis.