Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Textbook Question
Chapter 12, Problem 12PS
ATech has fixed costs of
a. Which firm has higher operating leverage?
b. Which firm will likely have higher profits if the economy strengthens?
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Atech has fixed costs of $7 million and profits of $4 million. Its competitor, ZTech, is roughly the same size and this year earned the same profits, $4 million. However, ZTech operates with fixed costs of $5 million and lower variable costs.a. Which firm has higher operating leverage?b. Which firm will likely have higher profits if the economy strengthens?
19.
If company A has a higher degree of operating leverage than company B, then:
Multiple Choice
a)company A's profits are more sensitive to percentage changes in sales.
b)company A is less risky.
c)company A's variable expenses are high.
d)company A is more profitable.
How many statements below about operating leverage are correct?
1. Operating leverage measures the sensitivity of a firm's operating income to changes in the
firm's level of sales.
2. Automated operations results to greater operating leverage for the firm than mechanical
operations.
3. An operațing leverage of 5 means that a firm's operating income will increase by P0.5 for
every P1 increase in sales.
4. Operating leverage will decrease as the firm's margin of safety increases.
5. The higher the firm's operating leverage, the higher is its income potential but at the same
time, the higher the risk of incurring loss.
1
2
4
Chapter 12 Solutions
Essentials Of Investments
Ch. 12 - Prob. 1PSCh. 12 - Why does it make intuitive sense that the slope of...Ch. 12 - Which one of the following firms would be...Ch. 12 - Prob. 4PSCh. 12 - How do each of the following affect the...Ch. 12 - The present value of a firm’s projected cash flows...Ch. 12 - Prob. 7PSCh. 12 - Which of the following is consistent with a...Ch. 12 - Which of the following is not a governmental...Ch. 12 - Prob. 10PS
Ch. 12 - Prob. 11PSCh. 12 - ATech has fixed costs of 7 million and profits of...Ch. 12 - Choose an industry and identify the factors that...Ch. 12 - What monetary and fiscal policies might be...Ch. 12 - If you believe the U.S. dollar is about to...Ch. 12 - Unlike other investors, you believe the Fed is...Ch. 12 - Consider two firms producing smartphones. One uses...Ch. 12 - Prob. 18PSCh. 12 - Prob. 19PSCh. 12 - Prob. 20PSCh. 12 - In which stage of the industry life cycle would...Ch. 12 - Prob. 22PSCh. 12 - Why do you think the change in the index of labor...Ch. 12 - You have 5,000 to invest for the next year and are...Ch. 12 - General Weedkillers dominates the chemical weed...Ch. 12 - Prob. 26PSCh. 12 - Prob. 27PSCh. 12 - Prob. 28PSCh. 12 - Prob. 29PSCh. 12 - Prob. 30PSCh. 12 - Prob. 31PSCh. 12 - Prob. 32PSCh. 12 - Prob. 33CCh. 12 - Prob. 1CPCh. 12 - Prob. 2CPCh. 12 - Prob. 3CPCh. 12 - Prob. 4CPCh. 12 - Prob. 5CPCh. 12 - Prob. 1WM
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