Fundamentals of Financial Management, Third Edition

OBJECTIVE-TYPE QUESTIONS

1. Mark true or false.
   1. ROI can be raised by raising the profit margin.
   2. ROI will be lower if the asset turnover is higher.
   3. Operating leverage exists when changes in revenue produce greater changes in operating profit.
   4. The larger the fixed operating cost, the greater the part of margin of contribution that is applied to cover the fixed cost.
   5. The greater the DOL, the greater will be change in EBIT as a result of fluctuation in sales.
   6. The DFCL is obtained by dividing operating profit by EBT.
   7. DCL is the product of DOL and DFCL.
2. Choose the most suitable answer.
   1. Financial leverage exists when:
      1. debt is present in the capital structure
      2. ROI is equal to the interest rate
      3. both of the above
   2. ROI can be improved by
      1. raising profit ...