If pretax profits decrease by 13.8% when the DOL is 3.8, then the decrease in sales is:
95. When management selects production technologies that include a high proportion of fixed costs, it:
A. decreases the DOL.
B. increases the DOL.
C. decreases the NPV-breakeven level of sales.
D. reduces the NPV of the cash flows.
96. What happens to a firm with high operating leverage when the overall level of sales is very high?
A. The firm will have higher levels of fixed costs.
B. The firm will enjoy high profits.
C. The firm will not break even in accounting terms.
D. The firm will have a reduced level of fixed costs.
97. For a firm with a DOL of 3.5, an increase in sales of 6% will:
A. increase pretax profits by 3.5%.
B. decrease pretax profits by 3.5%.
C. increase pretax profits by 21.0%.
D. increase pretax profits by 1.71%.
98. A firm with $600,000 fixed costs and $200,000 depreciation is expected to produce $225,000 in profits. What is its DOL?
99. If a firm's DOL is 4.0 with a profit of $2,000,000 and depreciation of $500,000, what are its fixed costs?
100. What is the fixed-cost expenditure for a firm with a DOL of 4.5 that generates pretax profits of $1 million and has $600,000 in depreciation expense?
A. $1.1 million
B. $2.1 million
C. $2.9 million
D. $3.9 million
101. The option to alter production technology gives managers:
A. the flexibility to adapt to changing situations.
B. increased cash flow from operations.
C. the opportunity to expand production.
D. the ability to expand product lines.
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