1. Amish Enterprises makes wooden play sets. The company pays annual rent of $350,000 per year and pays administrative salaries totaling $120,000 per year. Each play set requires $300 of wood, ten hours of labor at $50 per hour, and variable overhead costs of $50. Fixed advertising expenses equal $40,000 per year. Each play set sells for $ 2,350. What is Amish Enterprises’ break even output level? (Points :1)
a. 340 play sets
b. 217 play sets
c. 159 play sets
d. 270 play sets
2. A plant may remain operating when sales are depressed _________ (Points :1)
a. If the selling price per unit exceeds the variable cost per unit
b. To help the local economy
c. In an effort to cover at least some of the variable cost
d. Unless variable costs are zero when production is zero
3. A firm that uses large amounts of debt financing in an industry characterized by a high degree of business risk would have ______ earnings per share fluctuations resulting from changes in levels of sales. (Points :1)
4. Financial leverage could mean financing some of a firm’s assets with _____ (Points :1)
a. Common stock
b. Retained earnings
c. Corporate bonds
d. Sales revenues
5. Break even analysis is used to study the effect on EBIT of changes in all of the following except: (Points :1)
a. Corporate taxes
c. Cost structure
6. The break even point in sales dollars is convenient if ______ (Points :1)
a. The firm sells a large amount of one product
b. The firm deals with more than one product
c. The price per unit is very low
d. Depreciation expense is high
7. A corporation with very high growth prospects and many positive NPV projects to fund may want to increase its dividend based on _______ (Points :1)
a. The tax bias against capital gains.
b. The residual dividend theory
c. The information effect
d. The very low agency costs of the corporation
8. Stock dividends ________ (Points :1)
Decrease stock prices because no cash goes to shareholders but companies pay transactions costs.
a. May increase stock prices if the dividend is used to maintain an optimal trading range for common stock.
b. May increase stock prices if investors perceive the dividend as containing favorable information about the firm’s future prospects.
c. Both B and C are true.
9. Which of the following is the most valid reason to split a stock that has a market price of $110 per share? (Points :1)
a. Conserve cash
b. Reduce the market price to a more popular trading range.
c. Obtain additional capital.
d. Increase investor’s net worth.
10. What is the economic difference between a stock dividend and a stock split?(Points :1)
a. Stock splits create greater economic benefits to shareholders than stock dividends
b. Stock splits increase
c. EPS more than stock dividends
d. There is no economic difference between a stock dividend and a stock split.
e. Stock dividends create greater economic benefits to shareholders than stock splits.