1. Which of the following can cause income statement leverage?

Taxes

None of these items can cause income statement leverage

Preferred Dividends

Interest Expense

Common Dividends

2. Income Statement leverage is caused by which of the following?

Revenue

Fixed Operating Costs

All of the other items cause income statement leverage

Variable Costs

Earnings Before Interest and Taxes

3. What are DOL and DFL for the firm whose data is shown below?

Sales = $80.00 million Total Assets = $100.00 million

Variable Costs = $40.00 million Debt = $50.00 million

Fixed Costs = 15.00 million Interest Rate = 10.00%

Tax Rate = 40.00%

1.60 and 1.25 respectively

none of these are correct

2.00 and 1.15 respectively

1.60 and 3.125 respectively

1.25 and 2.00 respectively

4. Which of the following is a limitation of ratio analysis?

Ratios are sometimes difficult to compare.

Ratios are not very good at detecting fraud.

Ratios are sometimes difficult to interpret.

All of the other answers are correct limitations of ratio analysis.

Ratios are only as reliable as the underlying financial statements.