1. The risk associated with the market demand for a product and the price received for it is best described as:
A. business risk.
B. operating risk.
C. sales risk.
2. Degree of operating leverage is best described as a measure of the sensitivity of:
A. Net earnings to changes in sales.
B. Fixed operating costs to changes in variable costs.
C. Operating earnings to changes in the number of units sold.
3. Asparagus Inc. is highly leveraged relative to its counterpart Supras Inc. If operating income of Asparagus is 0, the most likely effect is that:
A. NI and ROE will be negative for Asparagus Inc.
B. NI and ROE will be negative for Supras. Inc.
C. NI and ROE will be lower but positive for both companies.
Tomorrow’s questions of the day will be on the topic of R38 Dividends and Share Repurchases: Basics