1. Business risk is measured by the:

• Volatility of the sales.
• Volatility of EBIT.
• Volatility of the gross profit.
• Volatility of net income.

2.Firm XX financed its assets by 100% equity while Firm YY financed its assets by 40% debt and 60% equity. If the EBIT of both companies is always identical across all economic situations, Firm XX has _________volatility in ROE_________Firm Y.

• equal, as compared to
• lower, than
• cannot identify
• higher, than

3.Your son wants to start a lemonade stand. The annual fixed cost is $50. The price of a glass of lemonade is $0.30 while variable costs are $0.10. The breakeven point of this lemonade stand is:

• 125 glasses per year.
• 167 glasses per year.
• 500 glasses per year.
• 250 glasses per year.

4.The Degree of Operating Leverage (DOL) is a multiplier that describes the percentage change in:

• Gross income associated with a percentage change in sales.
• Net income associated with a percentage change in operating income.
• Operating income associated with a percentage change in sales.
• Net income associated with a percentage change in sales.

5.eBuy Corporate Income StatementeBuy Corporation20x1 Income Statement (in $millions)Sales2,877Cost of Goods Sold (100% variable)1,012Operating Expense (100% fixed)821Depreciation364Earnings Before Interest and Taxes680Interest Expense320Earnings Before Taxes360Taxes140Net Income220

What is the DOL of eBuy? Assume Cost of Goods Sold is variable cost and all operating expenses are fixed costs.

• 8.48
• 3.09
• 4.23
• 2.74

6.In 20X1 eBuy Corporation had sales of $2,877 (in millions), EBIT of $680 (in millions), and net income of $220 (in millions). Its DOL, DFL, and DCL are 4.23, 3.09 and 13.08, respectively. If the sales increases to $3,200 (in millions) in 20X2, what is the earnings before interest and taxes of eBuy in 20X2?

• $357
• $916
• $1,678
• $709
• $1,003

7.MyEducator20x5 Income Statement (in $millions)Sales5,521Cost of Goods Sold (100% variable)552Operating Expense (100% fixed)3,249Earnings Before Interest and Taxes1,720Interest Expense840Earnings Before Taxes880Taxes352Net Income528

1. What is the DFL of MyEducator? Assume Cost of Goods Sold is variable cost and all operating expenses are fixed costs.

• 3.26
• 1.95
• 2.89
• 1.67

8.In 20X5MyEducator had sales of $5,521(in millions), EBIT of $1,720 (in millions), and net income of $528 (in millions). Its DOL, DFL, and DCL are 3.21, 3.26 and 10.46, respectively. If the EBIT decreases to $1,580(in millions) in 20X6, what is the net income of MyEducator in 20X6?

• $668
• $393
• $79
• $388
• $545

9.ABC Corporation20x8 Income Statement (in $millions)Sales3,482Cost of Goods Sold (100% variable)650Operating Expense (100% fixed)2,194Earnings Before Interest and Taxes638Interest Expense323Earnings Before Taxes315Taxes126Net Income189

What is the DCL of ABC? Assume Cost of Goods Sold is variable cost and all operating expenses are fixed costs.

• 18.42
• 11.05
• 8.99
• 5.46

10.In 20X1 eBuy Corporation had sales of $2,877 (in millions), EBIT of $680 (in millions), and net income of $220 (in millions). Its DOL, DFL, and DCL are 4.23, 3.09 and 13.08, respectively. If the sales increases to $3,200 (in millions) in 20X2, what is the net income of eBuy in 20X2?

• $229
• $543
• $2
• $325
• -$103