PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Question
Chapter 10, Problem 17PS
Summary Introduction
To calculate: The amount of operating leverage, if sales are $7,000 and $12,000 respectively.
Summary Introduction
To discuss: The reason for the operating leverage to be varied at 2 levels.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Why would a company want to know their operating leverage when they can already calculate the number of units that need to be sold to reach a desired level of profit?
Operating leverage measures the:
1. Change in profit when sales changes
2. change in contrribution when sales changes
3. change in BEP when fixed cost changes
4. change in BEP when sales changes
Which of the following will increase BOTH the operating leverage and the financial leverage? Assume operating cash flow OCF=(P-c)×Q-FC, where P is the price, c is the variable cost, Q is the quantity of goods sold, and FC is the fixed costs.
A. Holding P,c, and FC constant, increase Q
B. Holding P,c, and Q constant, increase FC
C. Holding sales (i.e.,P×Q), c, and FC constant, increase P
D. None of the above
Chapter 10 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 10 - Terminology Match each of the following terms to...Ch. 10 - Project analysis True or false? a. Sensitivity...Ch. 10 - Sensitivity analysis Otobais staff (see Section...Ch. 10 - Prob. 4PSCh. 10 - Prob. 7PSCh. 10 - Scenario analysis What is the NPV of the electric...Ch. 10 - Prob. 9PSCh. 10 - Break-even analysis Break-even calculations are...Ch. 10 - Prob. 11PSCh. 10 - Prob. 12PS
Ch. 10 - Prob. 13PSCh. 10 - Break-even analysis A financial analyst has...Ch. 10 - Fixed and variable costs In a slow year, Deutsche...Ch. 10 - Operating leverage You estimate that your cattle...Ch. 10 - Prob. 17PSCh. 10 - Prob. 20PSCh. 10 - Real options Explain why options to expand or...Ch. 10 - Prob. 22PSCh. 10 - Real options True or false? a. Decision trees can...Ch. 10 - Prob. 24PSCh. 10 - Real options An auto plant that costs 100 million...Ch. 10 - Decision trees Look back at the Vegetron electric...Ch. 10 - Prob. 27PSCh. 10 - Prob. 28PSCh. 10 - Prob. 29PSCh. 10 - Prob. 32PS
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 NOT true? Group of answer choices Operating leverage predicts the effect of fixed costs on operating income when sales volume changes. A higher proportion of fixed cost in a cost structure results in higher operating leverage. The higher the operating leverage, the higher the risk of loss when sales volume decreases. A higher proportion of fixed cost in a cost structure results in lower operating leverage.arrow_forwardPlease answer the blank areas including total expenses, income from operations, what is the expected margin of safety in dollars and as a percentage of sales (if required , round the percent to one decimal place) and determine the operating leverage . Thx ( please provide explanations).arrow_forwardSuppose that the elasticity of demand at a given price level is E(p)=.8. What does that mean? Select both the correct answer to elastic, unit, or inelastic as well as what the company should do to increase revenue. Since 0arrow_forward1. Which of the following shows the degree of operating leverage? The percentage change in the sales volume as the result of the percentage change in cost of the goods sold The percentage change in the net income as the result of the percentage change in the variable costs The percentage change in the sales volume as the result of the percentage change in the sales price The percentage change in the net inome as the result of the percentage change in the sales volume The percentage change in the operating income as the result of the percentage change in the sales volumearrow_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_forwardDegree of operating leverage (DOL) measures the sensitivity of OCF in response to changes of The higher the DOL, the the volatility of a firm's operating income. Select one: a. sales quantity; lower O b. sales quantity; higher O c. fixed costs; lower O d. fixed costs; higher O e. variable costs; higherarrow_forwardWhich 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arrow_forwardMN.1 Which of the following is a potential cost or benefit of positive leverage? A interest tax shield B mitigation of information asymmetry C higher goal congruence D direct and indirect costs of financial distress E. All of the abovearrow_forwardLet's tackle each part of the question step by step:1. **Monopoly Market:** A) To find the profit-maximizing output and price, we first need to find the monopolist's marginal revenue (MR) function. MR is the derivative of total revenue (TR) with respect to quantity (Q). TR is simply the product of price (P) and quantity (Q). \[TR = P \times Q = (120 - Q) \times Q = 120Q - Q^2\] Taking the derivative of TR with respect to Q: \[MR = \frac{dTR}{dQ} = \frac{d(120Q - Q^2)}{dQ} = 120 - 2Q\] Setting MR equal to marginal cost (MC) to maximize profit: \[MR = MC\] \[120 - 2Q = 20\] \[100 = 2Q\] \[Q = 50\] Now, substitute \(Q = 50\) into the demand function to find the price: \[P = 120 - Q = 120 - 50 = 70\] So, the profit-maximizing output is 50 units, and the price is $70. B) To find the total profit, we need to subtract total costs from total revenue: \[TR = P \times Q = 70 \times 50 = 3500\] \[TC = 20Q 200 = 20(50) 200 = 1000\] Total profit: \[Total\ Profit = TR - TC = 3500 - 1000 = 2500\]2.…arrow_forward[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.arrow_forwardChanges in sales cause changes in profits. Would the profit change associated with sales changes be larger or smaller if a firm increased its operating leverage? Explain your answer.arrow_forward10. Other things being equal, the higher the degree of operating leverage, the profit opportunity with increased sales and risk of loss with a decrease in sales. A) Lower; higher B) Higher; lower c) Lower; lower D) Higher; higher Your answer is Explain your answer:arrow_forwardarrow_back_iosSEE MORE QUESTIONSarrow_forward_ios
Recommended textbooks for you
Essentials Of InvestmentsFinanceISBN:9781260013924Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.Publisher:Mcgraw-hill Education,
Foundations Of FinanceFinanceISBN:9780134897264Author:KEOWN, Arthur J., Martin, John D., PETTY, J. WilliamPublisher:Pearson,
Fundamentals of Financial Management (MindTap Cou...FinanceISBN:9781337395250Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i...FinanceISBN:9780077861759Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan ProfessorPublisher:McGraw-Hill Education
Essentials Of Investments
Finance
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:9780134897264
Author:KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:Pearson,
Fundamentals of Financial Management (MindTap Cou...
Finance
ISBN:9781337395250
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i...
Finance
ISBN:9780077861759
Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:McGraw-Hill Education
Cost-Volume-Profit (CVP) Analysis and Break-Even Analysis Step-by-Step, by Mike Werner; Author: Accounting Step by Step;https://www.youtube.com/watch?v=D0MOfse9OWk;License: Standard Youtube License