HomeworkLib
Question

A company with a higher proportion of fixed costs will create A. a higher degree of...

A company with a higher proportion of fixed costs will create


A. a higher degree of sensitivity of EBITDA to a change in revenues.


B. a lower degree of sensitivity of EBITDA to a change in revenues.


C. no discernible difference of a change in sensitivity of EBITDA to a change in revenues.


D. a company with a much more stable profit stream as a function of revenues.

business   finance   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

A company with a higher proportion of fixed costs will imply that the firm has a high degree of operating leverage (DOL). This, in turn, would mean that the firm has ahigh sensitivity of Operating Income to Revenue. Therefore, EBITDA (proxy for operating income) will have a higher degree of sensitivity to a change in revenue.

Hence, the correct option is (A)

0 0
Add a comment
Know the answer?
Add Answer to:
A company with a higher proportion of fixed costs will create A. a higher degree of...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • Higher operating leverage: Select one: a. means higher proportion of fixed costs within a firm’s overall...

    Higher operating leverage: Select one: a. means higher proportion of fixed costs within a firm’s overall cost structure b. leads to more business risk c. leads to higher expected EBIT d. leads to higher risk e. All of the above

  • 10 Which of the following statements is true? activity is higher than expected total fixed costs...

    10 Which of the following statements is true? activity is higher than expected total fixed costs should be higher than expected. I civity is lower than expected, total fixed costs should be lower than expected Fixed costs should not be included in a flexible budget because they do not change when the level of activity changes. C A revenue variance is favorable if the actual revenue is greater than the revenue in the master (static planning) budget. A spending variance...

  • Company A is a manufacturer with sales of $4,000,000 and a 60% contribution margin. Its fixed costs equal $1,800,000. C...

    Company A is a manufacturer with sales of $4,000,000 and a 60% contribution margin. Its fixed costs equal $1,800,000. Company B is a consulting firm with service revenues of $3,900,000 and a 25% contribution margin. Its fixed costs equal $400,000. Compute the degree of operating leverage (DOL) for each company. Which company benefits more from a 20% increase in sales Complete this question by entering your answers in the tabs below. Company Benefits DOL Compute the degree of operating leverage...

  • 3 LUHELIEU UIE TUIIUNITY PILE GITU LUDI LIIGI OLIEHSULD. $ Sales price Variable costs Fixed costs...

    3 LUHELIEU UIE TUIIUNITY PILE GITU LUDI LIIGI OLIEHSULD. $ Sales price Variable costs Fixed costs 14 per unit 2 per unit 48,000 per month 2 of 2 mts eBook Assume that the company plans to sell 6,000 units per month. Consider requirements (6), (q), and (independently of each oth Required: a. What will be the operating profit? b. What is the impact on operating profit if the sales price decreases by 20 percent? Increases by 40 percent? c. What...

  • Match the following letter for the correct number A. Fixed Factor or Fixed Costs B. Total costs = Fixed Costs +...

    Match the following letter for the correct number A. Fixed Factor or Fixed Costs B. Total costs = Fixed Costs + Variable Costs C. Marginal Costs = Marginal Revenue D. Variable Factor or Variable Costs E. Diminishing Marginal Returns F. Specialization G. Economic Profit = Total Revenue - Total Explicit Costs - Total Implicit Costs H. Marginal Cost I. Marginal Revenue J. sunk costs 1. A small Italian restaurant has to turn away customers during a peak season rush because...

  • The Proportion Challenged Candy Co. makes and sells boxes of chocolate candy. Proportion has fixed expenses...

    The Proportion Challenged Candy Co. makes and sells boxes of chocolate candy. Proportion has fixed expenses of $250,000 each month plus variable expenses of $5.25 per box of candy. Proportion sells each box of candy for $9.75. Compute the contribution margin of each box of candy. Compute the number of boxes of candy that Proportion must sell each month to break even. Round up to the nearest whole box. Compute the contribution margin ratio for a box of candy ....

  • eted, total fixed costs should be higher than expected. If activity is lower than o included in a flexible budget b...

    eted, total fixed costs should be higher than expected. If activity is lower than o included in a flexible budget because they do not change when the level of activity 10 Which of the following statements is true? A. If activity is higher than expected, total fixed cos expected, total fixed costs should be lower than expected B Fixed costs should not be included in a flexible bu changes. A revenue variance is favorable if the actual revenue is greater...

  • ABC Tax is evaluating the profitability of their two customers, A and B. Total fixed costs...

    ABC Tax is evaluating the profitability of their two customers, A and B. Total fixed costs are allocated evenly between customer A and B, and will remain the same whether they add or drop customers. Should ABC Tax drop customer B? The profit/loss for each customer is shown below. Should customer B be dropped? A B Revenue 250,000 140,000 Variable costs 112500 63000 Contribution margin 137,500 77,000 Allocated fixed costs 80000 80000 Customer profit (loss) 57,500 -3,000 No, profit will...

  • 3. A certain company has fixed costs of $15,000 for its product and variable costs is...

    3. A certain company has fixed costs of $15,000 for its product and variable costs is given by 140 +0.04x dollars per unit where x is the total number of units. The selling price p of the product is given by 300 -0.06x dollars per unit. (6 pts) a) Set up the functions for total cost and total revenue. b) Find the minimum break even quantity. c) Set up the profit function and compute the number of units that will...

  • The difference between variable costs and fixed costs is     A.   Unit variable costs fluctuate, and...

    The difference between variable costs and fixed costs is     A.   Unit variable costs fluctuate, and unit fixed costs remain constant.     B.   Unit variable costs are fixed over the relevant range, and unit fixed costs are variable. C.   Total variable costs are variable over the relevant range and fixed in the long term, while fixed costs never change.     D.   Unit variable costs change in varying increments, while unit fixed costs change in equal increments.

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT