1) You are provided with the following information: Firm X and Firm Y both sell the same products at the same price; both firms are the same size with identical sales levels; Firm X has lower fixed costs and higher variable operating costs than Firm Y. Which firm has the greater variability in its operating profits?

• A. Firm X
• B. Firm Y
• C. Same variability of operating profits
• D. It would depend on tax effect on taxable income

2)

If EBIT = $20,000 Interest expense = $500 Net income = $5,000 Calculate DFL.

• A.

  4

• B.

  1.03

• C.

  1

• D.

  .98