Week 03 Quiz
Welcome to the Week 3 Quiz. Only one attempt will be accepted. If you need to leave the quiz, you may do so by closing your browser; however, your progress will not be saved. Once you hit SUBMIT, your quiz will be complete. Each question will go 0.125% towards your final grade. Good luck!
Question #1 (1 point)
A firm sells 70,000 units, and their fixed costs are $60,000, variable cost per unit is $2.20, and the price per unit is $3.20. If a firm has $3,000 in interest payments, what is the firm’s degree of combined leverage?
7.5
10.0
12.5
15.0
Question #2 (1 point)
Which of the following is a consequence of level production in a company that experiences seasonal fluctuations in sales?
Current assets fluctuate up and down when sales and production are not equal
Permanent current assets tend to decrease as companies experience growth while fixed assets remain steady
Companies must take out loans during peak sales months and pay them back during slow months
All of the above are consequences of level production
Question #3 (1 point)
Leverage magnifies returns as volume increases as well as magnifies losses as volume decreases.
False
True
Question #4 (1 point)
An aggressive, risk-oriented firm is more likely to borrow long term and and maintain relatively high levels of liquidity, hoping to increase profits.
True
False
Question #5 (1 point)
When comparing the potential risk of multiple companies, the firms with higher coefficients of variance have higher business risk.
True
False
Question #6 (1 point)
Which of the following statements are potential reasons to explain the shape of the yield curve?
Short-term securities have greater liquidity, therefore higher rates must be offered to long-term bond buyers
Various financial institutions must invest in whichever security best matches their needs
Long-term rates reflect the average of short-term expected rates over the long-term security’s life span
All of the above statements…