1) The degree of financial leverage (DFL) is defined as the percentage change in _____ that results from a given percentage change in earnings before interest and tax (EBIT).

a.sales

b.net operating income (NOI)

c.operating fixed costs

d.net income

e.earnings per share (EPS)

2) Which of the following is the correct expression for the amount of common stock or debt that a company needs to issue after taking into account the flotation costs?

a.Amount of issue = (Net proceeds - Other flotation costs in dollars) / (1 - Percentage flotation costs)

b.Amount of issue = (Net proceeds + Other flotation costs in dollars) / (1 - Percentage flotation costs)

c.Amount of issue = (Net proceeds + Other flotation costs in dollars) / (1 + Percentage flotation costs)

d.Amount of issue = (Net proceeds - Other flotation costs in dollars) / (1 + Percentage flotation costs)

e.Amount of issue = (Net proceeds + Other flotation costs in dollars) (1 - Percentage flotation costs)

3) Sarah invests $2700 today in an account that pays 6 percent interest compounded annually. She wants to know the total balance in her account five years from today. Identify the correct keystrokes to be used in a financial calculator to determine the total balance.

a.N = 6, I/Y = 5, PV = 2,700

b.N = 5, I/Y = 6%, PV = -2,700

c.N = 5, I/Y = 6%, PV = 2,700

d.N = 5, I/Y = 6, PV = 2,700

e.N = 5, I/Y = 6, PV = -2,700

4) Which of the following is an example of a firm's long-term debt?

a.Common stock

b.Retained earnings

c.Accounts payable

d.Corporate bonds

e.Accounts receivable

5) Changes in a firm's bond rating affect its ability to:

a.claim deductions in tax liability computation.

b.procure raw material in sufficient quantity for manufacturing processes.

c.increase the coupon rate on bonds issued to investors.

d.borrow long-term capital and the cost of such funds.

e.exercise a call provision on its bonds.