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46. Weston's has variable costs that average 68% of sales. If fixed costs increase by $1, what
will be the increase in the break-even level of revenues?
47. The accounting break-even level of sales represents the point where:
48. The Corner Market has fixed costs of $1,600, depreciation of $1,200, a tax rate of 35%,
and a cost of capital of 12%. Variable costs represent 67% of sales. What minimum level of sales
must the market obtain to avoid a net loss on its income statement?
49. Calculate the accounting break-even level of sales assuming $865,000 of fixed costs,
$400,000 depreciation expense, and a variable costs-to-sales ratio of 65%.
50. What effect will a reduction in the cost of capital have on the accounting break-even level
of revenues?
51. Break-even revenues on an accounting basis typically indicate a:
52. The accounting break-even level of revenues represents the point at which the firm has:
53. Which one of the following changes, if of a sufficient magnitude, could turn a negative
NPV project into a positive NPV project?
54. If forecasted sales exceed the accounting break-even level but are less than the
economic break-even level, the project has a:
55. Calculate the ratio of variable costs to sales for a firm with a $3 million accounting break-
even revenue point, $1.2 million fixed costs, and $450,000 depreciation.
56. What is the maximum percentage of variable costs to sales that a firm could have and
still break even with $5 million in revenues, $1 million in fixed costs, and $500,000 of
depreciation?
57. A firm with 60% of sales going to variable costs, $1.5 million fixed costs, and $500,000
depreciation and sales of $3 million. How does the current level of sales compare to the
accounting break-even sales level?
58. A 6-year project has an economic break-even level of sales of $5 million and a discount
rate of 8%. The annual cash inflows are equal to 10% of sales minus $300,000. What was the
initial investment in the project assuming that none of the investment is recoverable when the
project ends?
59. Calculate the economic break-even level of sales for a project requiring an investment of
$3 million and providing annual cash flows equal to 15% of sales less $250,000. None of the
initial investment is recoverable. Assume the project will generate these cash flows for 10 years
and the discount rate is 10%.
60. If the level of sales is less than that calculated as the economic break-even level, then
the:
61. The difference between an NPV break-even level of sales and an accounting break-even
level of sales is the:
62. A project that adds zero economic value:
63. A project with which one of these sets of values would you be most apt to reject?
64. Fixed costs including depreciation have increased at Leverage Inc., from $4 million to
$5.3 million in an effort to reduce variable costs. What must the new variable cost percentage of
sales be to break even from an accounting perspective at $20 million?
65. Fixed costs:
66. A firm with high operating leverage is expected to:
67. What percentage change in sales occurs if profits increase by 3% when the firm's degree
of operating leverage is 4.5?
68. What percentage change in sales will occur if pretax profits decrease by 13.8% when the
DOL is 3.8?
69. When management selects new production technologies that require a higher proportion
of fixed costs than that of its operations, then the implementation of those technologies will:
70. What happens to a firm with high operating leverage when the overall level of sales is
very high?
71. For a firm with a DOL of 3.5, an increase in sales of 6% will:
72. A firm with $600,000 of fixed costs and $200,000 of depreciation is expected to produce
$225,000 in profits. What is its DOL?
73. If a firm's DOL is 3.6 with a profit of $2,000,000 and depreciation of $500,000, what are its
fixed costs?
74. 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?
75. Which one of the following offers the most plausible scenario for a firm that maintained a
constant degree of operating leverage when its level of fixed costs doubled?
