Foundations of Financial Management
16th Edition
ISBN: 9781259277160
Author: Stanley B. Block, Geoffrey A. Hirt, Bartley Danielsen
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Videos
Textbook Question
Chapter 5, Problem 9DQ
Explain why operating leverage decreases as a company increases sales and shifts away from the break-even point. (LO5-3)
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
[S1] Operating leverage will decrease as the company's margin of safety increases. [S2]The break-even point for a capital intensive, automated company will tend to be higher than for a less capital intensive company while the margin of safety will tend to be lower.
Only S1 is true.
Only S2 is true.
Both statements are true.
Both statements are false.
Which of the following statements about operating leverage is false?
O a. If the degree of operating leverage higher for a company, this means that the company is more riskyt
another company with low degree of operating leverage.
O b. Keeping all factors constant, the higher the contribution margin, the lower the operating leverage.
O c. Operating leverage measures how operating income will be affected by changes in sales
O d. All of the given answers are true.
The degree of operating leverage is higher for comnanies with higher fived costs
= here to search
-
hp
%23
6.
7
V
3
4
W
E
R
T'
Y
岁
S
D
F
G
H
K.
V
M.
Σ
00
近
[S1]Two companies with the same margin of safety in dollars will also have the same total contribution margin. [S2] If a company has high operating leverage, then profits will be very sensitive to changes in sales.
Only S1 is true.
Only S2 is true.
Both statements are true.
Both statements are false.
Chapter 5 Solutions
Foundations of Financial Management
Ch. 5 - Discuss the various uses for break-even analysis....Ch. 5 - What factors would cause a difference in the use...Ch. 5 - Explain how the break-even point and operating...Ch. 5 - Prob. 4DQCh. 5 - What does risk taking have to do with the use of...Ch. 5 - Discuss the limitations of financial leverage....Ch. 5 - Prob. 7DQCh. 5 - Explain how combined leverage brings together...Ch. 5 - Explain why operating leverage decreases as a...Ch. 5 - Prob. 10DQ
Ch. 5 - Prob. 1PCh. 5 - Prob. 2PCh. 5 - Prob. 3PCh. 5 - Draw two break-even graphs-one for a conservative...Ch. 5 - Prob. 5PCh. 5 - Shawn Pen & Pencil Sets Inc. has fixed costs of ....Ch. 5 - Calloway Cab Company determines its break-even...Ch. 5 - Prob. 8PCh. 5 - Boise Timber Co. computes its break-even point...Ch. 5 - The Sterling Tire Company’s income statement for...Ch. 5 - Prob. 11PCh. 5 - Healthy Foods Inc. sells 50-pound bags of grapes...Ch. 5 - United Snack Company sells 50-pound bags of...Ch. 5 - Prob. 14PCh. 5 - Prob. 15PCh. 5 - Lenow’s Drug Stores and Hall’s Pharmaceuticals...Ch. 5 - The capital structure for Cain Supplies is...Ch. 5 - Sterling Optical and Royal Optical both make glass...Ch. 5 - Prob. 19PCh. 5 - Sinclair Manufacturing and Boswell Brothers Inc....Ch. 5 - DeSoto Tools Inc. is planning to expand...Ch. 5 - Prob. 23PCh. 5 - Prob. 24PCh. 5 - Prob. 25PCh. 5 - Mr. Gold is in the widget business. He currently...Ch. 5 - Delsing Canning Company is considering an...Ch. 5 - Prob. 2WECh. 5 - Prob. 3WECh. 5 - Prob. 4WECh. 5 - Prob. 5WE
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Which of the following statements about operating leverage is false? a. Operating leverage measures how operating income will be affected by changes in sales b. The degree of operating leverage is higher for companies with lower fixed costs c. Keeping all factors constant, the higher the contribution margin, the higher the operating leverage. d. All of the given answers are true. e. If the degree of operating leverage higher for a company, this means that the company is more risky than another company with low degree of operating leverage.arrow_forwardWhich of the following statements about operating leverage is false? O a. All of the given answers are true. O b. Keeping all factors constant, the higher the contribution margin, the higher the operating leverage. OC. Operating leverage measures how operating income will be affected by changes in sales O d. If the degree of operating leverage higher for a company, this means that the company is more risky than another company with low degree of operating leverage. The degree of operating leverage is higher for companies with lower fixed costs O e.arrow_forwardSuppose firms in this economy pay their workers efficiency wages. This practice will likely lead to a (faster, slower) adjustment of the economy to its long-run equilibrium because firms will be (less, more) likely to (reduce, raise) the wages of their employees.arrow_forward
- If a firm decreases its operating costs, all else constant, then the: A. profit margin will decrease.B. return on assets will decrease.C. total asset turnover rate will increase.D. cash coverage ratio will decrease.E. price-earnings ratio will decrease Can you give me detailed explanation?arrow_forward9arrow_forwardpart4..arrow_forward
- As a company's sales move farther from its breakeven point(increasing movement), one would expect the degree of operating leverage to a. Increase b. Decrease c. Remain unchanged d. vary in direct proportion to changes in the activity levelarrow_forwardTrue or false for Question 6 and 7arrow_forwardIs my explanation correct? When the shit in sales toward the lower contribution margin. In the sales mix, if the shift in sales to a product that has a low contribution margin ratio, the break-even point will increase. In this case, the company will generate more sales; hence, the net operating income will increase. Also, the contribution margin ratio will increase. Moreover, the degree of operating leverage will increase, too. Please explain (True or False) in detail.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Fundamentals Of Financial Management, Concise Edi...FinanceISBN:9781337902571Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage Learning
Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
Fundamentals Of Financial Management, Concise Edi...
Finance
ISBN:9781337902571
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning
How To Analyze an Income Statement; Author: Daniel Pronk;https://www.youtube.com/watch?v=uVHGgSXtQmE;License: Standard Youtube License