Break Even Analysis

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1. Potential applications of break-even model include: (Points : 1)       Replacement for time adjusted capital budgeting techniques       Pricing policy       Optimizing the cash marketable securities position of a firm       All of the above

2. Benkart’s Tie Store has fixed costs of $180,000. Tires sell for $75 each and have a unit variable cost of $30. What is Benkart’s break-even point in units? (Points : 1)       4,000       6,000       7,200       8,500

3. Which of the following statements would be consistent with the Dividend Irrelevance Theory? (Points : 1)       There is no relationship between a firm’s dividend policy and the value of its common stock.       Perfect capital markets are assumed to exist which allow investors to buy and sell stock without incurring any transaction costs.       Investors are indifferent whether stock returns come from dividend income or capital gains income.       All of the above.

4. 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)       340 play sets       217 play sets       159 play sets       270 play sets

5. What is the economic difference between a stock dividend and a stock split? (Points : 1)       Stock splits create greater economic benefits to shareholders than stock dividends       Stock splits increase EPS more than stock dividends       There is no economic difference between a stock dividend and a stock split.       Stock dividends create greater economic benefits to shareholders than stock splits

6. The break even point in sales dollars is convenient if ______ (Points : 1)       The firm sells a large amount of one product       The firm deals with more than one product       The price per unit is very low       Depreciation expense is high

7. In perfect capital markets there ______ (Points : 1)       Is no informational content assigned to a particular dividend policy.       Are no income taxes       Are no flotation costs       All of the above

8. Moline Manufacturing Corporation reported the following items: Sales = $5,000,000’; variable costs of production = $2,000,000; variable selling and administrative expenses = $250,000; fixed costs = $1,600,000; EBIT = $1,100,000; and the marginal tax rate =40%. Moline’s break-even pint in sales dollars is ____________ (Points : 1)       $3,900,000       $3,750,000       $3,000,000       $2,340,000

9. All of the following may influence a firm’s dividend payment except: (Points : 1)       Investment opportunities.       Investor transaction costs       Common stock par value       Flotation costs

10. A plant may remain operating when sales are depressed _________ (Points : 1)       If the selling price per unit exceeds the variable cost per unit       To help the local economy       In an effort to cover at least some of the variable cost       Unless variable costs are zero when production is zero