--Operating leverage means financing a portion of a firm\'s earnings per share w

Question

--Operating leverage means financing a portion of a firm's earnings per share with debt. True or false

--An increase in financial leverage will increase the absolute value of EPS, everything else equal. True or False

--The firm's cost of capital is important when evaluation the firm's overall value, but should not be used to evaluate individual projects which have their own unique characteristics. true or false

--Break-even analysis ignores fixed costs because fixed costs do not change. True or False

--As production levels increase, fixed costs stay the same in total, but decrease on a per unit basis. true or false

Explanation / Answer

Solution for question 1

Operating leverage means financing a portion of a firm's earnings per share with debt.

Hence, Statement is true.

Solution for question 2

An increase in financial leverage will increase the absolute value of EPS, everything else equal.

The statement is true, because on debt Capital Company is obliged to pay interest only that to interest payment on deductible from the taxable income. If earning power exceeds the interest payment then remaining earning on debt is transferred to equity holder.

Solution for question 3

The firm's cost of capital is important when evaluation the firm's overall value, and also be used to evaluate individual projects which have their own unique characteristics.

Hence, given statement is false.

Solution for question 4

While calculation of Break-even analysis fixed cost and import part to consider.

Hence, given statement is false.

Solution for question 5

As production levels increase, fixed costs stay the same in total, but decrease on a per unit basis.

Hence, given statement is true

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