Principles of Finance 6Th Edition Besley Test Bank Full Chapter PDF

Principles of Finance 6th Edition Besley
Test Bank
Visit to download the full and correct content document:
https://testbankdeal.com/download/principles-of-finance-6th-edition-besley-test-bank/
Principles of Finance, 6e
Besley/Brigham
Chapter 08
1. The projected balance sheet method of forecasting is based on which of the following assumptions?
a. All balance sheet accounts are tied directly to sales.
b. Most balance sheet accounts are tied directly to sales.
c. The current level of total assets is optimal for the current sales level.
d. Answers a and c above.
e. Answers b and c above.
ANSWER: e
POINTS: 1
DIFFICULTY: Easy
ACCREDITING STANDARDS: Blooms Taxonomy-5 - Knowledge
Business Program-6 - Reflective Thinking
DISC-FIN-01 - Stocks and Bonds
DISC-FIN-03 - Capital Budgeting and Cost of Capital
Time Estimate-a - 5 min.
TOPICS: Projected Balance Sheet Method
2. The projected balance sheet forecasting method produces accurate results unless which of the following condition(s) is
(are) present?
a. Fixed assets are "lumpy."
b. Strong economies of scale are present.
c. Excess capacity exists because of a temporary recession.
d. Answers a, b, and c all make the projected balance sheet method inaccurate.
e. Answers a and c make the projected balance sheet method inaccurate, but, as the text explains, the assumption
of increasing economies of scale is built into the projected balance sheet method.
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
3. Which of the following statements is correct?

a. One of the key steps in the development of pro forma financial statements is to identify those assets and
liabilities which increase spontaneously with net income.
b. The first, and most critical, step in constructing a set of pro forma financial statements is establishing the sales
forecast.
c. Pro forma financial statements as discussed in the text are used primarily to assess a firm's historical
performance.
d. All else equal, if a firm operates at full capacity, the greater its payout ratio, the less additional funds that will
be needed for a particular growth in sales.
e. The projected balance sheet forecasting method produces accurate results when fixed assets are lumpy and
Cengage Learning Testing, Powered by Cognero Page 1
© 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Besley/Brigham
Chapter 08
when economies of scale are present.
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
TOPICS: Forecasting Concepts
4. Assume a portion of a firm's long-term funds includes either debt or preferred stock. Which of the following statements
is correct?
a. The firm must possess operating leverage, which means that a change in net income will result in a greater
percentage change in earnings before interest and taxes (EBIT).
b. The firm has financial leverage, which means that a change in sales will result in a greater percentage change
in EBIT.
c. The firm has financial leverage, which means that a change in EBIT will result in a greater percentage change
in earnings per share (EPS).
d. The firm doesn't have leverage, because leverage is created through the use of common equity financing only.
e. None of the above is a correct answer.
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
TOPICS: Leverage
5. Which of the following is a key determinant of operating leverage?

a. Level of debt.
b. Physical location of production facilities.
c. Cost of debt.
d. Technology.
e. Capital structure.
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
Besley/Brigham
Chapter 08
TOPICS: Operating Leverage
6. The degree of operating leverage for ABC Inc. is 3.5, and the degree of operating leverage for XYZ Corporation is 7.0.
According to this information, which firm is considered to have greater business risk?
a. ABC Inc.
b. XYZ Corporation.
c. The degree of operating leverage is not a measure of business risk, so it is not possible to tell which firm has
the greater business risk given the above information.
d. To determine which firm has the greater business risk, we need to know the operating income (NOI or EBIT)
of each firm. XYZ Corporation would have less business risk if its operating income is at least twice that of
ABC Inc.
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
7. The degree of financial leverage for ABC Inc. is 2.5, and the degree of financial leverage for XYZ Corporation is 1.5.
According to this information, which firm is considered to have greater financial risk?
a. ABC Inc.
b. XYZ Corporation.
c. The degree of financial leverage is not a measure of financial risk, so it is not possible to tell which firm has
the greater financial risk given the above information.
d. To determine which firm has the greater financial risk, we need to know the operating income (NOI or EBIT)
of each firm. XYZ Corporation would have less financial risk if its operating income is at least twice that of
ABC Inc.
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
TOPICS: Financial Leverage
8. Which of the following is a key determinant of financial leverage?
Besley/Brigham
Chapter 08
a. Level of debt.
b. Technology.
c. Labor costs.
d. Amount of fixed assets used by the firm.
e. Variable cost of goods sold.
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
9. The financial breakeven point for a firm is defined as the level of ____ that produces ____ equal to zero.
a. sales; EBIT.
b. sales; gross profit.
c. EPS; sales.
d. gross profit; EBIT.
e. EBIT; EPS.
ANSWER: e
POINTS: 1
DIFFICULTY: Easy
TOPICS: Financial Breakeven Point
10. Which of the following is (are) typically part of the cash budget?
a. Payments lag.
b. Payment for plant construction.
c. Cumulative cash.
d. All of the above.
e. Only answers a and c above.
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
Besley/Brigham
Chapter 08
TOPICS: Cash Budget
11. Considering each action independently and holding other things constant, which of the following actions would
reduce the firm's need for additional capital?
a. An increase in the dividend payout ratio.
b. A decrease in the profit margin.
c. A decrease in the days sales outstanding.
d. An increase in expected sales growth.
e. A decrease in the accrual accounts (accrued wages and taxes).
ANSWER: c
POINTS: 1
DIFFICULTY: Moderate
TOPICS: Additional Funds Needed
12. Holding other things constant, the additional funds required for financing the firm's operations would be reduced with
an increase in the firm's
a. Dividend payout ratio.
b. Profit margin.
c. Cost of external funds.
d. Expected growth rate in sales.
e. Tax rate.
ANSWER: b
POINTS: 1

a. Any forecast of financial requirements involves determining how much money the firm will need and is
obtained by adding together increases in assets and spontaneous liabilities and subtracting operating income.
b. The projected balance sheet method of forecasting financial needs requires only a forecast of the firm's balance
sheet. Although a forecasted income statement helps clarify the financing needs, it is not essential to the
balance sheet method.
Besley/Brigham
Chapter 08
c. Because dividends are paid after taxes from retained earnings, dividends are not included in the projected
balance sheet method of forecasting.
d. The projected balance sheet method forces recognition of the fact that new financing creates additional
financial obligations. For instance, new financing can increase expenses which can actually decrease taxes but
increase the projected financial need.
e. Financing feedback describes the effect on the firm's stock price of the announcement that the firm will sell
new equity or debt to raise needed capital.
ANSWER: d
POINTS: 1
14. The degree of operating leverage has which of the following characteristics?
a. The closer the firm is operating to breakeven quantity, the smaller the DOL.
b. A change in quantity demanded will produce the same percentage change in EBIT as an identical change in
price per unit of output, other things held constant.
c. The DOL is not a fixed number for a given firm, but will depend upon the time zero values of the economic
variables Q (Quantity), P (Price), and V (Volume).
d. The DOL relates the change in net income to the change in net operating income.
e. If the firm has no debt, the DOL will equal 1.
ANSWER: c
POINTS: 1
TOPICS: DOL
15. The degree of financial leverage for Aries Inc. is 3.0, and the degree of financial leverage for Common Capital
Corporation is 6.2. According to this information, which firm is considered to have greater overall (total) risk?
a. Aries Inc.
b. Common Capital Corporation.
c. The degree of financial leverage is a measure of financial risk, so the only conclusion that can be made with
the information given is that Common Capital Corporation has greater financial risk than Aries Inc.⎯ we
cannot tell which firm has greater total risk.
d. To determine which firm has the greater total risk, we need to know the financial breakeven point of each
firm.
Besley/Brigham
Chapter 08
ANSWER: c
POINTS: 1
TOPICS: Leverage and Risk
16. The degree of financial leverage has which of the following characteristics?
a. The closer the firm is operating to its financial breakeven point, the smaller the DFL.
b. Other things held constant, if a firm has fixed financial costs, such as interest, a change in EBIT will result in
an equivalent change in EPS.
c. For a particular firm, the DFL is not a fixed number⎯its value depends on the level of operations and the fixed
financial costs associated with those operations.
d. The DFL relates the change in EBIT to the change in sales.
e. If a firm has common stock, it is impossible for its DFL to equal 1.0.
ANSWER: c
POINTS: 1
TOPICS: DFL
17. If a firm's degree of total leverage (DTL) is 8.0, which of the following must be correct?
a. The firm must have fixed operating costs.
b. The firm must have fixed financial costs.
c. The firm must have both fixed operating costs and fixed financial costs.
d. The firm must have some fixed costs, but not enough information is given to determine whether the fixed costs
are operating, financial, or both.
e. With the information given, we cannot tell whether the firm has any fixed costs (either operating or financial)
at all.
ANSWER: d
POINTS: 1
Besley/Brigham
Chapter 08
TOPICS: DTL
18. Other things held constant, which of the following statements is correct if a firm currently is operating at its financial
breakeven point?
a. EBIT must be greater than zero.
b. EBIT would equal zero if the firm is financed only with common stock (i.e., there is no debt or preferred
stock).
c. EBIT would equal zero, hence EPS would be less than zero, if the firm has preferred stock but no debt.
d. EPS would equal zero only if the firm is financed with some amount of debt.
e. The firm would not be considered to have much financial risk, especially when compared to a firm that
operates well above its financial breakeven point.
ANSWER: b
POINTS: 1

a. The first pass using the projected balance sheet method determines the financing feedback effects and
determines how much in additional funds are needed. The second pass completes the cycle, identifies the full
financing need, and eliminates further feedback effects.
b. Interest expense on additional new debt is the only income statement account affected by financing feedback,
and dividends payable to new common stock is the only balance sheet account affected.
c. The projected balance sheet method is useful for determining additional funds needed, however, it cannot be
used in evaluating dividend policy and capital structure decisions.
d. One reason a firm's managers may choose to meet additional funds needed requirements through common
stock is that it involves no financing feedback effects. Since no new debt is used, interest expense will be
considered fully in the first pass, the income statement will remain unchanged, and no second pass is needed.
e. If new debt and new stock are used to meet new financing needs, net income will decrease from the first pass
to the second pass even though taxes decrease. In addition, if dividends are to be paid on new stock, this will
further decrease the amount of retained earnings available for financing needs.
ANSWER: e
POINTS: 1
DIFFICULTY: Hard
TOPICS: Financing Feedback Effects
Besley/Brigham
Chapter 08
20. Which of the following statements about cash management is false?

a. Depreciation expense does not appear explicitly on the cash budget, but its tax effects are included.
b. If cash flows are not uniform during the month, then weekly or perhaps daily cash budgets should be prepared
rather than monthly budgets.
c. Compensating balance requirements do not affect a firm's target cash balance.
d. Cash management involves costs, and it is important to analyze whether the benefits received outweigh the
costs included.
e. The cash budget is the foundation of good cash management.
ANSWER: c
POINTS: 1
TOPICS: Cash Management

a. Depreciation is included in the estimate of cash flows (Cash flow = Net income + Depreciation), so
depreciation is set forth on a separate line in the cash budget.
b. If cash inflows and cash outflows occur on a regular basis, such as the situation where inflows from
collections occur in equal amounts each day and most payments are made regularly on the 10th of each month,
then it is not necessary to use a daily cash budget. A cash budget prepared at the end of the month will suffice.
c. Cash budgets are more important for fast food retailers, such as McDonald's, which deal primarily with cash
than for manufacturers, such as General Motors, that generally sell on credit.
d. When constructing a cash budget, it probably is easier to forecast cash inflows than cash outflows.
e. All of the above statements are false.
ANSWER: c
POINTS: 1
TOPICS: Cash Budget
22. Jill's Wigs Inc. had the following balance sheet last year:
Cash $ 800 Accounts payable $ 350
Accounts receivable 450 Accrued wages 150
Inventory 950 Notes payable 2,000
Net fixed assets 34,000 Mortgage 26,500
Besley/Brigham
Chapter 08
Common stock 3,200
Retained earnings 4,000
Total assets $36,200 Total liabilities and equity $36,200
Jill has just invented a non-slip wig for men which she expects will cause sales to double, increasing after-tax net income
to $1,000. She feels that she can handle the increase without adding any fixed assets. (1) Will Jill need any outside capital
if she pays no dividends? (2) If so, how much?
a. No; zero
b. Yes; $7,700
c. Yes; $1,700
d. Yes; $700
e. No; there will be a $700 surplus.
ANSWER: d
RATIONALE: Balance sheet solution:
Pro Forma Balance Sheet
Cash $ 1,600 Accounts payable $ 700
Accounts receivable 900 Accrued wages 300
Inventory 1,900 Notes payable 2,000
Net fixed assets 34,000 Mortgage 26,500
Common stock 3,200
Retained earnings 5,000
Total assets $38,400 Total liabilities & equity $37,700
AFN = $38,400 − $37,700 = $700.
POINTS: 1
DIFFICULTY: Easy
ACCREDITING STANDARDS: Blooms Taxonomy-1 - Analyzing
Business Program-3 - Analytic
DISC-FIN-05 - Financial Analysis and Cash Flows
23. The Price Company will produce 55,000 widgets next year. Variable costs will equal 40 percent of sales, while
operating fixed costs will total $110,000. At what price must each widget be sold for the company to achieve an EBIT of
$95,000?
a. $2.00
b. $4.45
c. $5.00
d. $5.37
e. $6.21
ANSWER: e
RATIONALE: EBIT = PQ − VQ − FC
$95,000 = P(55,000) −(0.4)P(55,000) −$110,000
$205,000 = (0.6)(55,000)P
$205,000 = 33,000P
Besley/Brigham
Chapter 08
P = $6.21.
POINTS: 1
DIFFICULTY: Easy
TOPICS: Determining Price
24. Texas Products Inc. has a division which makes burlap bags for the citrus industry. The unit has operating fixed costs
of $10,000 per month, and it expects to sell 42,000 bags per month. If the variable cost per bag is $2.00, what price must
the division charge in order to break even?
a. $2.24
b. $2.47
c. $2.82
d. $3.15
e. $2.00
ANSWER: a
RATIONALE: Total costs
$10,000 + $2(42,000) = $94,000.
=
Price = $94,000/42,000 = $2.24.
POINTS: 1
DIFFICULTY: Easy
TOPICS: Breakeven Price
25. You are the owner of a small business which has the following balance sheet:
Current assets $ 5,000 Accounts payable $ 1,000
Net fixed assets 10,000 Accruals 1,000
Long-term debt 5,000
Common equity 8,000
Total assets $15,000 Total $15,000
Fixed and current assets are fully utilized, and the sales/assets and sales/spontaneous liabilities ratios will remain constant.
Next year you expect sales to increase by 50 percent. You also expect to retain $2,000 of next year's earnings within the
firm. What is next year's additional external funding requirement, i.e., what is your firm's AFN?
a. No additional funds are required.
b. $3,500
c. $4,500
Besley/Brigham
Chapter 08
d. $5,500
e. The answer depends on this year's sales level.
ANSWER: c
RATIONALE: Balance sheet solution:
Accounts payable $ 1,500
Current assets $ 7,500 Accruals 1,500
Net fixed assets 15,000 Long-term debt 5,000
Common equity 10,000
Total liabilities and
Total assets $22,500 $18,000
equity
AFN = $22,500 − $18,000 = $4,500.
POINTS: 1
26. A firm has the following balance sheet:

Accounts receivable 20 Notes payable 40
Inventory 20 Long-term debt 80
Fixed assets 180 Common stock 80
Retained earnings 20
Total assets $240 Total liabilities and equity $240
Sales for the year just ended were $400, and fixed assets were used at 80 percent of capacity, but its current assets were at
optimal levels. Sales are expected to grow by 5 percent next year, the profit margin is 5 percent, and the dividend payout
ratio is 60 percent. How much additional funds (AFN) will be needed?
a. $4.6
b. −$6.4 (Surplus)
c. $2.4
d. −$4.6 (Surplus)
e. $0.8
ANSWER: b
RATIONALE: S0 = $400. S1 = S0 × 1.05 = $420. SCapacity = $400/0.80 = $500. No new fixed assets are
needed to support sales increase. Balance sheet solution:
Cash $ 21 Accounts payable $ 21.0
Accounts receivable 21 Notes payable 40.0
Inventory 21 Long-term debt 80.0
Fixed assets 180 Common stock 80.0
Besley/Brigham
Chapter 08
Retained earnings 28.4
Total liabilities and
Total assets $243 $249.4
equity
Addition to retained earnings = $420 × 0.05 × 0.4 = $8.40. AFN = $243.0 − $249.4 =
−$6.4. Surplus of 6.4.
POINTS: 1
27. A firm has the following balance sheet:

Inventories 10 Long-term debt 40
Fixed assets are being used at 80 percent of capacity; sales for the year just ended were $200; sales will increase $10 per
year for the next 4 years; the profit margin is 5 percent; and the dividend payout ratio is 60 percent. Assume that fixed
assets cannot be sold. What are the total external financing requirements for the entire 4 years, i.e., the total AFN for the
4-year period?
a. $4.00
b. $2.00
c. −$0.80 (Surplus)
d. −$14.00 (Surplus)
e. $0
ANSWER: d
RATIONALE:
S0 = $200; S1 = $210; S2 = $220; S3 = $230; S4 = $240. Fixed
assets will not need to be increased because S4 < SCapacity; $240 < $250. Balance sheet
solution:
Inventories 12 Long-term debt 40
Addition to retained earnings: (S1 + S2 + S3 + S4) × 0.05 × 0.40 = $18.00. AFN = $126 −
$140 = −$14 Surplus.
Besley/Brigham
Chapter 08
POINTS: 1
TOPICS: Financing Requirements
28. Compuvac Company has just completed its first pass forecast using the projected balance sheet method. The firm has
determined that it needs $4 million in new debt which can be sold at par with a 10% annual coupon. Additionally, the firm
will sell 500,000 shares of new common equity at $18.10 per share. Next year's expected dividend is $0.48 per share. The
firm expects that taxes will be $160,000 less under the second pass than they were under the first pass based on a 40% tax
rate. Given this information, what is the incremental change in AFN for Compuvac going from the first pass to the second
pass?
a. $240,000
b. $0
c. $480,000
d. $160,000
e. $640,000
ANSWER: c
RATIONALE: Increase in interest expense ($4,000,000 × 0.10) = ($400,000)
Decrease in income taxes ($400,000 × 0.40) = 160,000
Net change in net income (2nd pass) ($240,000)
Increase in dividends (500,000 × $0.48) = ($240,000)

Net change in retained earnings (2nd pass) ($480,000)
Net change in retained earnings from first pass to second pass equals the incremental
change in AFN from the first pass to the second pass = $480,000.
POINTS: 1
29. Hensley Corporation uses breakeven analysis to study the effects of expansion projects it considers. Currently, the
firm's plastic bag business segment has fixed operating costs of $120,000, while its unit price per carton is $1.20 and its
variable unit cost is $0.60. The firm is considering a new bag machine and an automatic carton folder as modifications to
its existing production lines. With the expansion, fixed costs would rise to $240,000, but variable cost would drop to
$0.41 per unit. One key benefit is that Hensley can lower its wholesale price to its distributors to $1.05 per carton (i.e., its
selling price), and this would likely more than double its market share, as it will become the lowest cost producer. What is
the change in the operating breakeven volume with the proposed project?
a. 100,000 units
Besley/Brigham
Chapter 08
b. 175,000 units
c. 75,000 units
d. 200,000 units
e. 0 units
ANSWER: b
RATIONALE: Calculate the old and new breakeven volumes using the old data and new projections:
Old QBE = $120,000/($1.20 − $0.60) = $120,000/$0.60 = 200,000 units. New QBE =
$240,000/($1.05 − $0.41) = $240,000/$0.64 = 375,000 units. Change in breakeven
volume = 375,000 − 200,000 = 175,000 units.
POINTS: 1
TOPICS: Change in Breakeven Volume
30. Martin Corporation currently sells 180,000 units per year at a price of $7.00 per unit; its variable cost is $4.20 per unit;
and fixed operating costs are $400,000. Martin is considering expanding into two additional states which would increase
its fixed costs to $650,000 and would increase its variable unit cost to an average of $4.48 per unit. If Martin expands it
expects to sell 270,000 units at $7.00 per unit. By how much will Martin's operating breakeven sales dollar level change?
a. $183,333
b. $456,500
c. $805,556
d. $910,667
e. $1,200,000
ANSWER: c
RATIONALE: Calculate the initial breakeven volume in dollars:
Calculate
the new breakeven volume in sales dollars:
The
increase in SB = $1,805,556 − $1,000,000 = $805,556.

POINTS: 1
Besley/Brigham
Chapter 08
TOPICS: Breakeven and Expansion
31. Elephant Books sells paperback books for $7 each. The variable cost per book is $5. At current annual sales of
200,000 books, the publisher is just breaking even. It is estimated that if the authors' royalties are reduced, the variable
cost per book will drop by $1. Assume authors' royalties are reduced and sales remain constant; how much more money
can the publisher put into advertising (a fixed cost) and still break even?
a. $600,000
b. $466,667
c. $333,333
d. $200,000
e. None of the above.
ANSWER: d
RATIONALE: $7(200,000) − $5(200,000)
0
−F=
F= $400,000.
$7(200,000) − $4(200,000)
0
−F=
F= $600,000.
$600,000 − $400,000 = $200,000.

POINTS: 1
TOPICS: Breakeven Point
32. Marcus Corporation currently sells 150,000 units a year at a price of $4.00 a unit. Its variable costs are approximately
30% of sales, and its fixed operating costs amount to 50% of revenues at its current output level. Although fixed costs are
based on revenues at the current output level, the cost level is fixed. What is Marcus' degree of operating leverage in sales
dollars?
a. 1.0
b. 2.2
c. 3.5
d. 4.0
e. 5.0
ANSWER: c
RATIONALE: Use the information provided and the formula for DOL in sales dollars:
Besley/Brigham
Chapter 08
Alternate method:
Express P as 1.0 or 100% of price and V and FC as a percent of price

POINTS: 1
TOPICS: DOL in Sales Dollars
33. Kulwicki Corporation wants to determine the effect of an expansion of its sales on its operating income (EBIT). The
firm's current DOL is 2.5. It projects new unit sales to be 170,000, an increase of 45,000 over last year's level of 125,000
units. Last year's EBIT was $60,000. Based on a DOL of 2.5, what is this year's projected EBIT with the increase in sales?
a. $60,000
b. $175,000
c. $100,000
d. $90,000
e. $114,000
ANSWER: e
RATIONALE: Set up the DOL equation, letting X be the unknown new EBIT: Let X = New EBIT.
New EBIT = $114,000
POINTS: 1
TOPICS: Projected EBIT
Besley/Brigham
Chapter 08
34. Stromburg Corporation makes surveillance equipment for intelligence organizations. Its sales are $75,000,000. Fixed
operating costs, including research and development, are $40,000,000, while variable costs amount to 30% of sales.
Stromburg plans an expansion which will generate additional fixed costs of $15,000,000, decrease variable costs to 25%
of sales, and also permit sales to increase to $100,000,000. What is Stromburg's DOL at the new projected sales level?
a. 3.75
b. 4.20
c. 3.50
d. 4.67
e. 3.33
ANSWER: a
RATIONALE: Calculate DOL using new sales, new variable cost percentage, and new fixed costs: S0 =
$75,000,000; FC0 = $40,000,000; VC = 0.30(S0) = $22,500,000. S1 = $100,000,000; FC1
= $55,000,000; VC = 0.25(S1) = $25,000,000. (In millions)
POINTS: 1
TOPICS: DOL Change
35. Musgrave Corporation has fixed operating costs of $46,000 and variable costs that are 30% of the current sales price
of $2.15. At a price of $2.15, Musgrave sells 40,000 units. Musgrave can increase sales by 10,000 units by cutting its unit
price from $2.15 to $1.95, but variable cost per unit won't change. Should it cut its price?
a. No, EBIT decreases by $6,000.
b. No, EBIT decreases by $250.
c. Yes, EBIT increases by $11,500.
d. Yes, EBIT increases by $8,050.
e. Yes, EBIT increases by $5,050.
ANSWER: d
RATIONALE: Calculate EBIT1 at 40,000 units using the current sales price:
EBIT1 = S − VC − FC
= 40,000($2.15) − 0.30(40,000)($2.15) − $46,000
= $86,000 − $25,800 − $46,000 = $14,200.
Calculate EBIT2 at 50,000 units using the lower price of $1.95:
EBIT2 = 50,000($1.95) − 0.30(50,000)($1.95) − $46,000
= $97,500 − $29,250 − $46,000 = $22,250.
The change in EBIT = $22,250 − $14,200 = +$8,050. Yes, Musgrave should cut its price,
EBIT increases by $8,050.
POINTS: 1
Besley/Brigham
Chapter 08
TOPICS: Operating Decision
36. Carolina Vineyards is considering two alternative production methods for turning grapes into wine. One method calls
for using a hand-operated press, while the other would employ a new, automated press. It has been estimated that the
variable cost per bottle will amount to $2.00 using the old press and $0.50 using the new machine. If the new machine is
purchased, fixed operating costs will equal $150,000, and interest charges will be $80,000. Fixed operating costs of
$25,000 will be incurred if the company decides to use the old press, and interest costs will be zero because no debt will
be needed. Assume that sales (in units) will be 100,000 bottles under the automated method and 75,000 units under the
labor intensive method. What sales price per unit would cause Carolina to be indifferent between the two methods?
a. $2.00
b. $2.20
c. $4.00
d. $4.20
e. $6.00
ANSWER: d
RATIONALE: Set the profit functions equal to each other
P(75,000) − $2.00(75,000) − P(100,000) − $0.50(100,000) −
$25,000 = $150,000
− $80,000
$2.00(75,000) − $0.50(100,000) −
P(75,000) − P(100,000) =
$205,000
−25,000P = −$105,000
P= $4.20.
POINTS: 1
TOPICS: Determining Price
37. You have been given the information below on the Crum Company. Crum expects sales to grow by 50% in 2011, and
operating costs should increase at the same rate. Fixed assets were being operated at 40% of capacity in 2010, but all other
assets were used to full capacity. Underutilized fixed assets cannot be sold. Current assets and spontaneous liabilities
should increase at the same rate as sales during 2011. The company plans to finance any external funds needed as 35%
notes payable and 65% common stock. After taking financing feedbacks into account, and after the second pass, what is
Crum's projected ROE using the projected balance sheet method?
Information on the Crum Company:

Besley/Brigham
Chapter 08
2011 2011
2010 1st pass 2nd pass
Sales $1,000.00
Operating costs 800.00
EBIT $ 200.00
Interest 16.00
EBT $ 184.00
Taxes (40%) 73.60
Net Income $ 110.40

Dividends (60%) 66.24
Add'n to R.E. $ 44.16
Current Assets $ 700.00

Net fixed Assets 300.00
Total assets $1,000.00
A/P and Accruals $ 150.00

N/P 8.00% 200.00
Common stock 150.00
Retained earnings 500.00
Total Liab & Equity $1,000.00

AFN
Profit Margin 11.04%
ROE 16.98%
Debt/Assets 35.00%
Current ratio 2.00 times
Payout Ratio 60.00%
Interest
AFN Financing: Weights: Dollars: Expense:
N/P 0.3500
Common Stock 0.6500
Growth rate: 50.00% 1.0000
a. 16.98%
b. 23.73%
c. 25.68%
d. 19.61%
e. 23.24%
ANSWER: d
RATIONALE: 2011 2011
Besley/Brigham
Chapter 08
2010 1st pass 2nd pass
Sales $1,000.00 $1,500.00 $1,500.00
COGS 800.00 1,200.00 1,200.00
EBIT $ 200.00 $ 300.00 $ 300.00
Interest 16.00 16.00 21.79
Net B.T. $ 184.00 $ 284.00 $ 278.21
Tax (40%) 73.60 113.60 111.28
Net Income $ 110.40 $ 170.40 $ 166.93
Dividends (60%) 66.24 102.24 100.16
Add'n to R.E. $ 44.16 $ 68.16 $ 66.77
Current Assets $ 700.00 $1,050.00 $1,050.00

Net fixed Assets* 300.00 300.00 300.00
Total assets $1,000.00 $1,350.00 $1,350.00
A/P and Accruals $ 150.00 $ 225.00 $ 225.00

N/P 8.00% 200.00 200.00 272.39
Common stock 150.00 150.00 284.45
Retained earnings 500.00 568.16 566.77
Total Liab & Equity $1,000.00 $1,143.16 $1,348.61
AFN 206.84 1.39
Cum. AFN 206.84 208.23
Profit Margin 11.04% 11.36% 11.13%
ROE 16.98% 23.73 19.61%
Debt/Assets 35.00% 37.18% 36.84%
Current ratio 2.00 2.47 2.11
Payout Ratio 60.00% 60.00% 60.00%
AFN Financing: Weights Dollars
N/P 0.3500 72.39 0.49
Common Stock 0.6500 134.45 0.90
1.0000 206.84 1.39
ROE = NI/equity = $166.93/$851.22 = 0.1961 = 19.61%.
POINTS: 1
DIFFICULTY: Hard
Time Estimate-b - 10 min.
TOPICS: Financing Feedback and ROE
Besley/Brigham
Chapter 08
38. Hogan Inc. generated EBIT of $240,000 this past year using assets of $1,100,000. The interest rate on its existing
long-term debt of $640,000 is 12.5 percent and the firm's tax rate is 40 percent. The firm paid a dividend of $1.27 on each
of its 37,800 shares outstanding from net income of $96,000. The total book value of equity is $446,364 of which the
common stock account equals $335,000. The firm's shares sell for $28.00 per share in the market. The firm forecasts a
10% increase in sales, assets, and EBIT next year, and a dividend of $1.40 per share. If the firm needs additional capital
funds, it will raise 60% with debt and 40% with equity. The cost of any new debt will be 13%. Spontaneous liabilities are
estimated at $15,000 for next year, representing an increase of 10% over this year. Except for spontaneous liabilities, the
firm uses no other sources of current liabilities and will continue this policy in the future. What will be the cumulative
AFN Hogan will need to balance its projected balance sheet using the projected balance sheet method through the first
two passes?
a. $5,013
b. $3,417
c. $51,156
d. $26,228
e. $54,573
ANSWER: e
RATIONALE: Forecast
Last Year Basis First Pass Feedback Second Pass
EBIT $ 240,000 × 1.10 $ 264,000 $ 264,000
− Interest 80,000 − 80,000 + 3,990 83,990
EBT $ 160,000 $ 184,000 $ 180,010
− Taxes 64,000 − 73,600 − 72,004
EAT = NI $ 96,000 $ 110,400 $ 108,006
NI avail. to
$ 96,000 $ 110,400 $ 108,006
common
Divs. to common
(37,800 × $1.27) 48,006 37,800 × 1.40 52,920 + 1,023 53,943
Addition to RE $ 47,994 $ 57,480 $ 54,063
Total assets $1,100,000 × 1.10 $1,210,000 $1,210,000
Accruals $ 13,636 × 1.10 $ 15,000 $ 15,000

Long-term debt 640,000 640,000 +30,694 670,694
Equity 335,000 335,000 +20,462 355,462
RE 111,364 168,844 − 3,417 165,427
Total liab & equity $1,100,000 $1,158,844 $1,206,583
AFN 51,156 3,417
Cumulative AFN $51,156 $54,573

AFN financing (first pass)
Long-term debt 0.60 × $51,156 = $30,694
Common stock 0.40 × $51,156 = 20,462
$51,156
Increase in shares of common stock: $20,462/$28 = 731 shares. Dividend: 731 × $1.40 =
Besley/Brigham
Chapter 08
$1,023.
POINTS: 1
DIFFICULTY: Hard
Time Estimate-b - 10 min.
Trident Food Corporation

Trident Food Corporation generated the following income statement for the most recent fiscal year, which ended
December 31, 2010:
Sales revenues $150,000
Variable cost of sales (112,500)
Gross profit 37,500
Fixed operating costs (24,000)
Net operating income (EBIT) 13,500
Interest (10,000)
Earnings before taxes 3,500
Taxes (40%) (1,400)
Net income 2,100
Each item of inventory Trident Foods produces has a selling price of $20.
39. Refer to Trident Food Corporation. What is the degree of operating leverage for Trident Foods?
a. 2.78
b. 10.71
c. 3.86
d. 3.00
e. 4.00
ANSWER: a
RATIONALE:
POINTS: 1
DIFFICULTY: Easy
TOPICS: DOL
40. Refer to Trident Food Corporation. What is the degree of total leverage for Trident Foods?
a. 42.86
Besley/Brigham
Chapter 08
b. 10.71
c. 71.43
d. 17.86
e. 6.43
ANSWER: b
RATIONALE:
POINTS: 1
DIFFICULTY: Easy
TOPICS: DTL
41. Refer to Trident Food Corporation. What is the operating breakeven point in sales units (Q) for Trident Foods?
a. 7,500
b. 5,625
c. 6,825
d. 4,800
e. 2,700
ANSWER: d
RATIONALE:
POINTS: 1
TOPICS: Operating Breakeven Point
42. Refer to Trident Food Corporation. What is the financial breakeven point for Trident Foods?
a. EBIT = $146,500
b. Sales = 4,800 units
c. EBIT = $10,000
d. Net income = $10,000
Besley/Brigham
Chapter 08
e. EBIT = $11,400
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
43. Refer to Trident Food Corporation. How many units of inventory must Trident Foods sell if it wants to operate at its
financial breakeven point?
a. 2,000
b. 500
c. 4,800
d. 2,280
e. 6,800
ANSWER: e
RATIONALE: The financial breakeven point is EBITFinancial BEP = I + Dps/(1 − T) = $10,000. Thus, EBIT
= $10,000 = QFinancial BEP(P − V) − F. P = $20, F = $24,000, V = ?. To solve for V, we
need to determine how many units of inventory are being sold at the current level of
sales. The current level of sales in units is equal to $150,000/$20 = 7,500; so, V =
$112,500/7,500 = $15. Plugging this information into the equation given above, we have:
EBIT = $10,000 = QFinancial BEP($20 − $15) −$24,000. Solving for Q yields the following:
POINTS: 1
DIFFICULTY: Hard
44. Underestimating the sales in your forecast could have which of the following effects on the firm?
a. The firm could acquire too many fixed assets.
b. The firm would have higher costs for depreciation and storage.
c. The firm could lose market share to their competitors.
d. The firm would have too high of a total asset turnover.
ANSWER: c
POINTS: 1
Besley/Brigham
Chapter 08
TOPICS: Sales Forecast Accuracy
45. Forecasting financial requirements for a firm involves determining how much money the firm will
a. generate internally.
b. have to raise externally.
c. need during a given period.
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
TOPICS: Pro Forma Financial Statements
46. To forecast the balance sheet, the firm must:

a. Project the asset requirement for the coming period.
b. Project the liabilities and equity that will be provided by normal operations.
c. Estimate the additional funds needed.
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
TOPICS: Pro Forma Financial Statements
47. Which of the following liabilities increase typically and create spontaneously generated funds as sales increase for the
firm?
a. Long-term debt
b. Accrued wages
c. Accounts receivable
d. Property, plant, and equipment
ANSWER: b
Besley/Brigham
Chapter 08
POINTS: 1
DIFFICULTY: Easy
TOPICS: Spontaneously Generated Funds
48. Warsaw Incorporated is currently operating at 80% of capacity. The sales of Warsaw were $25 million this year and
their net plant and equipment were valued at $100 million. Sales are expected to increase to $35 million next year. How
much additional plant and equipment will Warsaw need to acquire to keep production up with the new level of sales?
a. $20 million
b. $15 million
c. $12 million
d. $10 million
e. No additional plant and equipment is needed.
ANSWER: c
RATIONALE: Plant capacity = $25 million/.8 = $31.25 million Capacity needed to be acquired = $35
million − $31.25 million = $3.75 million Percent increase in capacity $3.75 million/$31.25
= 12% increased capacity needed 12% * $100 million = $12 million
POINTS: 1
TOPICS: Excess Capacity
49. Silver King Inc. is currently running at 60 percent of full capacity. The plant and equipment are currently valued $125
million and Silver King generated sales of $90 million. What is the full capacity sales of Silver King with their current
assets?
a. $208 million
b. $150 million
c. $125 million
d. $144 million
e. $100 million
ANSWER: b
RATIONALE: Full capacity sales = $90 million/.6 = $150 million
POINTS: 1
DIFFICULTY: Easy
Besley/Brigham
Chapter 08
TOPICS: Excess Capacity
50. Which of the following would generally be considered variable costs?

a. Labor
b. Rent
c. Insurance
d. Depreciation
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
TOPICS: Variable Costs
51. NJM Incorporated is a football manufacturer. NJM has fixed operating costs of $400,000 and variable costs of $12 per
football. The footballs sell for $35 each and NJM plans to sell 300,000 footballs this year. What are NJM's total operating
costs for the year?
a. $10,900,000
b. $4,000,000
c. $3,600,000
d. $3,200,000
e. $400,000
ANSWER: b
RATIONALE: TOC = $400,000 + ($12 * 300,000) = $4,000,000
POINTS: 1
TOPICS: Operating Costs
52. JT Inc. produces gourmet frozen dinners for the airline industry. JT has fixed costs of $200,000 and variable costs of
$8 per frozen dinner. The selling price per frozen dinner is $13 and JT plans to sell 150,000 frozen dinners this year. If JT
sells the 150,000 frozen dinners they planned to sell what will JT's operating profit be this year?
a. $1,950,000
b. $1,750,000
Besley/Brigham
Chapter 08
c. $750,000
d. $550,000
e. $1,000,000
ANSWER: d
RATIONALE: Operating Profit = Revenue − Total Operating Costs
= ($13*150,000) − $200,000 − ($8*150,000)
= $550,000
POINTS: 1
DIFFICULTY: Easy
53. What is the next step in the financial planning process after a firm develops a sales forecast?
a. determine additional funds needed to finance operations
b. determine the assets required to meet the sales target
c. determine the firm's optimal capital structure
d. estimate the degree of operating leverage
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
TOPICS: Financial Planning
54. The firm is concerned with implementing the financial plans, and with managing the feedback and adjustment process
needed to ensure that the goals of the firm are met during which stage of the planning and control process
a. control stage
b. planning stage
c. forecasting stage
d. budgeting stage
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
Besley/Brigham
Chapter 08
TOPICS: Financial Control
55. Which method estimates additional funds needed for a firm by projecting the assets needed for the coming and
subtracting the projected liabilities spontaneously generated.
a. Spontaneous method
b. Additional funds needed method
c. Feedback method
d. Projected balance sheet method
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
56. Breakeven analysis is the method of determining the point at which sales will just cover ____ costs.
a. labor
b. inventory
c. operating
d. financing
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
TOPICS: Breakeven Analysis
57. Which of the following business decisions can be improved using breakeven analysis?
a. New product decisions
b. An expansion in the level of the firm's operations
c. Modernization and automation projects
d. An evaluation of the riskiness of operations
e. Breakeven analysis can be used to improve all of the above business decisions
ANSWER: e
POINTS: 1
Besley/Brigham
Chapter 08
DIFFICULTY: Easy
58. All of the following are commonly examples of variable costs for a firm except
a. lease payments
b. labor
c. materials
d. All of the above are variable costs
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
TOPICS: Variable Costs
59. All else being equal, which of the following will lower the breakeven point of a firm?
a. higher fixed costs
b. lower selling price
c. lower variable costs
d. none of the above
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
TOPICS: Breakeven Point
60. If a firm has a high degree of leverage then a small change in sales results in
a. an unpredictable change in expected profits
b. a very small change in expected profits
c. no change in expected profits
d. a large change in expected profits.
ANSWER: d
Besley/Brigham
Chapter 08
POINTS: 1
DIFFICULTY: Easy
TOPICS: Leverage
61. A typical sales forecast, though concerned with future events, will usually be based on recent historical trends and
events as well as on forecasts of economic prospects.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
TOPICS: Sales Forecast
62. Errors in the sales forecast can be offset by similar errors in costs and income forecasts. Thus, as long as the errors are
not large, sales forecast accuracy is not critical to the firm.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Easy
TOPICS: Sales Forecast
63. As a firm's sales grow, its current asset accounts tend to increase. For instance, as sales increase, the firm's purchases
increase and its level of accounts payable will increase. Thus, spontaneously generated funds will arise from transaction
accounts that increase as sales increase.
a. True
b. False
ANSWER: True
POINTS: 1
Besley/Brigham
Chapter 08
DIFFICULTY: Easy
64. An increase in the firm's inventory balance normally will require additional financing unless the increase is matched
by an equally large decrease in some other asset account.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
TOPICS: Asset Increase
65. The term "spontaneously generated funds" generally refers to increases in the cash account that result from growth in
sales, assuming the firm is operating with a positive profit margin.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Easy
66. Any firm with a positive growth rate in sales will require some amount of external funding, assuming all existing
ratios are to be maintained.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Easy
Besley/Brigham
Chapter 08
67. To determine the amount of additional funds needed, you may subtract the expected increase in liabilities (a source of
funds) from the sum of the expected increases in retained earnings and assets (both uses of funds).
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Easy
68. Two key objectives of financial planning and control are to avoid cash squeezes and to improve profitability.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
TOPICS: Financial Planning Objectives
69. One situation where operating breakeven analysis can be valuable is when a firm plans to increase fixed investment in
order to lower variable cost, such as labor costs.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
Besley/Brigham
Chapter 08
TOPICS: Operating Breakeven Analysis
70. One limitation of operating breakeven analysis is that variable cost must be assumed constant throughout the analysis
in order to completely analyze changes in fixed investment.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Easy
TOPICS: Operating Breakeven Analysis
71. At the firm's operating breakeven point, total revenues and total variable costs are exactly equal.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Easy
TOPICS: Breakeven Relationships
72. Breakeven analysis can be used to determine how large sales of a new product must be for the firm to achieve
profitability, but it is not useful in studying the effects of a general expansion in the firm's operations.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Easy
Besley/Brigham
Chapter 08
73. Operating costs include variable costs, depreciation and interest charges.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Easy
74. The DOL is an index number that measures the effect of a change in sales price on the operating breakeven point.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Easy
TOPICS: DOL
75. If EBIT doubles when sales doubles, then the firm's degree of operating leverage must be exactly two.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Easy
TOPICS: DOL
76. Other things held constant, if a firm is operating at a profit and then sales increase, the degree of operating leverage
will decline.
a. True
b. False
ANSWER: True
Besley/Brigham
Chapter 08
POINTS: 1
DIFFICULTY: Easy
TOPICS: DOL
77. Today, computer simulations models can calculate multiple breakeven charts providing management with an idea of
how the firm's breakeven point would change under different assumptions for key variables.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
TOPICS: Computer Simulation
78. When a small change in sales results in a large change in operating income, one possible reason is that the firm is
employing a relatively high degree of operating leverage.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
TOPICS: DOL
79. Two firms which have the same operating leverage must also have the same ROA, since operating leverage and ROA
both measure the effective utilization of assets by the firm.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Easy
Besley/Brigham
Chapter 08
80. The higher the percentage of a firm's total costs that are fixed, the higher the degree of operating leverage and the
lower the operating breakeven point.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Easy
TOPICS: Operating Leverage and Breakeven
81. Alternative methods for producing a given product often have different degrees of operating leverage and hence have
different breakeven points and degrees of risk.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
TOPICS: Operating Leverage and Breakeven
82. The higher a firm's operating leverage, the higher is its business risk.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
Besley/Brigham
Chapter 08
83. The closer a firm is to its operating breakeven point, the greater is the absolute value of the degree of operating
leverage.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
TOPICS: DOL
84. The purpose of financial breakeven analysis is to determine the level of sales a firm needs in order to cover the fixed
and variable costs associated with producing and selling inventory items.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Easy
TOPICS: Financial Breakeven
85. If a firm has no preferred stock, its financial breakeven point is the sales level that results in net income equal to zero.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
TOPICS: Financial Breakeven
Besley/Brigham
Chapter 08
86. Financial breakeven analysis can be used to help evaluate the impact various forms of financing, such as debt and
equity, will have on the riskiness of a firm.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
TOPICS: Financial Breakeven Analysis
87. The degree of financial leverage gives an indication of how a change in EBIT will affect EPS.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
TOPICS: DFL
88. Everything else equal, the higher the DFL is for a firm, the closer its operations are to its financial breakeven point.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
TOPICS: DFL
89. Everything else equal, the higher the DFL is for a firm, the closer its operations are to its operating breakeven point.
a. True
b. False
ANSWER: False
Besley/Brigham
Chapter 08
POINTS: 1
DIFFICULTY: Easy
TOPICS: DFL
90. Other things held constant, if a firm operates at a profit and sales increase, the degree of financial leverage will
decline.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
TOPICS: DFL
91. Two firms that have the same financial leverage must also have the same ROE, because both financial leverage and
ROE measure the risk associated with equity financing.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Easy
92. Other things held constant, a high degree of total leverage will mean that a relatively small change in sales will result
in a large change in EPS.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
Besley/Brigham
Chapter 08
TOPICS: Total Leverage
93. Other things held constant, the higher the degree of total leverage exhibited by a firm, the greater the risk associated
with that firm.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
TOPICS: Leverage and Risk
94. A firm's peak borrowing needs will probably be overstated if it bases its monthly cash budget on uniform cash receipts
and disbursements, but actual receipts are concentrated at the beginning of each month.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
TOPICS: Cash Budget
95. The fact that long-term debt and equity funds are raised infrequently and in large amounts lessens the need for the firm
to forecast them on a continual basis.
a. True
b. False
ANSWER: False
POINTS: 1
Besley/Brigham
Chapter 08
TOPICS: Financial Forecasting
96. The projected balance sheet method assumes that the key ratios are constant, which means, for example, that if you
plotted a graph of inventories versus sales, the regression line would be linear and would have a positive Y-intercept.
a. True
b. False
ANSWER: False
POINTS: 1
97. The projected balance sheet forecasting method would be appropriate if, in a regression of sales on each asset and
spontaneous liability, the regression line was linear and passed through the origin.
a. True
b. False
ANSWER: True
POINTS: 1
98. If any firm with a positive net worth is operating its fixed assets at full capacity, if its dividend payout ratio is 100
percent, and if it wants to hold all financial ratios constant, then for any positive growth rate in sales, the firm will require
external financing.
a. True
b. False
ANSWER: True
POINTS: 1
Besley/Brigham
Chapter 08
99. Financial control involves a feedback and adjustment process that (1) ensures that existing plans are followed, or (2)
modifies existing plans in response to changes in the firm's operating environment.
a. True
b. False
ANSWER: True
POINTS: 1
TOPICS: Financial Control
100. Breakeven analysis can involve determining the magnitude of the firm's profit or losses at output levels on and
around the point where revenues equal costs.
a. True
b. False
ANSWER: True
POINTS: 1
101. The operating breakeven volume in units can be found by dividing the firm's total fixed cost in dollars by its profit
margin per unit (i.e., price less variable cost).
a. True
b. False
ANSWER: True
POINTS: 1
Besley/Brigham
Chapter 08
102. Firms A and B produce exactly the same products, but use different production technology. Firm A's variable costs
are greater than those of Firm B, but its operating breakeven point is lower. From this information, other things held
constant, we can conclude that Firm B has greater operating leverage than Firm A.
a. True
b. False
ANSWER: True
POINTS: 1
103. One potential benefit of high operating leverage is that it can reduce the average cost per unit at high levels of output,
thus generating a competitive cost advantage.
a. True
b. False
ANSWER: True
POINTS: 1
104. Other things held constant, a high degree of operating leverage will mean that a relatively small change in sales will
result in a large change in operating income.
a. True
b. False
ANSWER: True
POINTS: 1
TOPICS: Operating Leverage and Income
Another random document with
no related content on Scribd:
She drew Freda, who was shivering now, over on the couch, then turned
to Gregory.
“Good night, Gregory—again. You bring adventure with you.”
There was a smile in her eyes which he seemed to answer by a look in
his own. Then he looked past her to Freda.
“Good night, little wanderer. I’ll see you to-morrow.”
Freda saw him fully now. He was tall and thin and ugly. His dark eyes
seemed to flash from caverns above his high cheekbones. But he had a wide
Irish mouth and it smiled very tenderly at them both as he softly went out.
Freda would not take Margaret’s little couch bed for herself so Margaret
had to improvise a bed on the floor for her guest, a bed of blankets and
coats and Freda slept in Margaret’s warm bath robe. Oddly, she slept far
better than did Margaret, who, for a long while, held herself stiffly on one
side that her turning might not disturb Freda.
II
They both wakened early. Freda found the taste of stale adventure in her
mind a little flat and disagreeable. There were a number of things to be
done. Margaret telephoned briefly to the Brownley house, left word with a
servant that Miss Thorstad had spent the night with her.
“I’ll go up there after we have some breakfast,” she said to Freda, “and
get you some clothes. Then I think you’d better stay here with me. I’ll ask
the landlady to put an extra cot in here and we can be comfortable for a few
days. And please don’t talk of inconvenience”—she forestalled Freda’s
objections with her smile—“I’ll love to have company. If you stay in town
we’ll see if you can’t get a place of your own in the building here. Lots of
apartments have a vacant room to let.”
She was preparing breakfast with Freda’s help and the younger girl’s
spirits were rising steadily even though the thought of an interview with
Barbara remained dragging. It was great fun for Freda—the freedom of this
tiny apartment with its bed already made into a daytime couch, the eggs
cooking over a little electric grill on the table and the table set with a scanty
supply of dishes—two tall glasses of milk, rolls and marmalade.
“It’s so nice, living like this,” she exclaimed.
Margaret laughed.
“Then the Brownley luxury hasn’t quite seduced you?”
“I was excited by it. I’m afraid it did seduce me temporarily. But for the
last week something’s been wrong with me. And this was it. I wanted to get
out of the machinery. They leave you alone and all that—but it’s so ordered
—so planned. Everything’s planned from the menus to the social life. They
try to do novel things by standing on their heads sometimes in their own
grooves—at least the girls do—but really they get no freshness or freedom,
do they?”
“I should say that particular crowd didn’t. Of course you mustn’t
confound all wealthy people with them. They’re better than some but a
great deal less interesting than the best of the wealthy. And of course just
because their life doesn’t happen to appeal to your temperament—or mine
—”
“Are you always so perfectly balanced?” asked Freda, so admiringly as
to escape impertinence.
“I wish I were ever balanced,” answered Margaret. “And now suppose
you tell me a little more about what happened so I’ll be sure how I had
better take things up with the Brownley girls.”
Freda had been thinking.
“It really began with me,” she said. “Ted Smillie was Barbara’s man and
I was flattered when he noticed me. And of course I liked him—then—so I
let it go on and she hated me for that.”
“Stop me if I pry—but do you care for the young man now?”
“Oh—no!” cried Freda. “I’m just mortally ashamed of myself for letting
myself in as much as I did.”
“Everybody does.”
Margaret’s remark brought other ideas into Freda’s mind. She
remembered Gregory Macmillan and his apparent intimacy with Margaret.
But she asked nothing, going on, under Margaret’s questioning, with her
tale of the night before, and as they came to the part of Gregory’s
intervention, Margaret vouchsafed no information.
An hour later, she came back from the Brownley house, with Freda’s
suitcase beside her in a taxi.
“You did give them a bad night,” she said to Freda, “Bob Brownley
looks a wreck. It appears that later they went out to search the park—scared
stiff for you. And you had gone. They saw some men and were terrified.”
“Are they very angry?”
“Barbara tried to stay on her high horse. Said that although it was
possible she had misunderstood the situation it looked very compromising
and she thought it her duty in her mother’s absence—. Of course, she said,
she was sorry that matters had developed as they had. Poor Allie’d
evidently been thinking you’d been sewed up in a bag and dropped in the
river. They both want to let the thing drop quickly and I said they could say
that you were staying with me for the remainder of your visit. I also told
Barbara a few home truths about herself, and advised her to be very careful
what she said to her mother or I might take it up with her parents.”
“All this trouble for me!” cried Freda. “I am ashamed!”
“Nonsense. But I must go along quickly now. I’ve a meeting. Your trunk
will be along sometime this morning. Put it wherever you like and the
landlady will send the janitor up with a cot. And—by the way—if Gregory
Macmillan drops in, tell him I’m engaged for lunch, will you? You might
have lunch with him, if you don’t mind.”
“I feel aghast at meeting him.”
“Don’t let any lack of conventions bother you with Gregory. The lack of
them is the best recommendation in his eyes. He’s a wild Irish poet. I’ll tell
you about him to-night. I think you’ll like him, Freda. He’s the kindest
person I know—and as truthful as his imagination will let him be.”
“What is he in St. Pierre for?”
“Oh, ask him—” said Margaret, departing.
CHAPTER IX
WORK FOR FREDA
I T was on that morning that Gage Flandon made his last appeal to his wife
not to let herself be named as a candidate for Chicago at the State
Convention. He had been somewhat grim since the district convention.
As Margaret had realized would happen, certain men had approached him,
thinking to please him by sounding the rumor about sending his wife to the
National Convention. Many of them felt and Gage knew they felt that he
had started, or arranged to have started, a rumor that his wife would be a
candidate and that he meant to capitalize the entrance of women into
politics by placing his own wife at the head of the woman’s group in the
State. It was a natural enough conclusion and its very naturalness made
Gage burn with a slow, violent anger that was becoming an obsession. It
began of course with the revolt against that suspicion of baseness that he
could capitalize the position of his wife—that he could use a relation, which
was to him so sacred, to strengthen his own position. Yet, when these men
came with their flattery he could not cry down Helen without seeming to
insult her. There was only one way, he saw, and that was for Helen herself
to withdraw. If she did not, it was clear that she would be sent.
So he had besought and seemed to always beseech her with the wrong
arguments. He knew he had said trite things, things about women staying
out of politics, the unsuitability of her nature for such things, but he had felt
their triteness infused with such painful conviction in his own mind that it
continually amazed him to see how little response he awoke in her.
She had said to him, “You exaggerate it so, Gage. Why make such a
mountain out of a molehole? I’m not going to neglect you or the children.
I’ll probably not be elected anyhow. But why not regard it as a privilege and
an honor and let me try?”
“But why do you want to try?”
She looked as if she too were trying vainly to make him understand.
“I’d like to do something myself, Gage—something as myself.”
“You were content without politics two months ago.”
“I’ve changed—why begrudge me my enthusiasm?”
“Because I can’t bear to see you a waster like the rest of the women.
Because you’re so different. Everything about you is true and sound, dear,
and when you start deliberately using yourself for political effect, don’t you
see how you become untrue? There’s nothing in it, I tell you. The whole
thing’s cut and dried. There’s no big issue. If the women want to send some
one, let them choose some other figurehead!”
He had not meant it so but of course he seemed disparaging her.
“Perhaps,” she said rather frigidly, “perhaps I’ll not be such a figurehead
as you think.”
“But I didn’t mean to say that to hurt you.”
“I’m not sure what you do mean. It seems to me we’re actually childish.
You’ve chosen, quite deliberately, to be a reactionary in all this woman’s
progress movement. I’m sorry. But there is a loyalty one has to women,
Gage, beside the loyalty one has to a husband and I really cannot share your
prejudice against progress, as it applies to women.”
The unexpressed things in Gage’s mind fairly tore at him.
“If you really had one sensible objection, Gage—”
“There’s just one objection,” he said, doggedly, “you desecrate yourself.
Not by entering politics particularly. But by using yourself that way. You
mutilate your sex.”
She did not get angry. But she put one hand on his shoulder and they
looked at each other helplessly.
“Don’t you see,” said Helen, “that I want, like these other women, to
once in a while do something that’s clean of sex? That’s just me—without
sex?”
His eyes grew very hard. She struck almost mortally at the very thing he
loved most. And he moved away, as if to remove himself definitely.
“I’m sorry you feel so. It’s a pleasant remark for a man’s wife to fling at
him.”
Irony was so unusual in Gage that Helen stood looking after him after he
went out of the room. Her mind ached with the struggle, ached from the
assertion of this new determination of hers. Never had she wanted so to
give him comfort and be comforted herself. She saw the weeks ahead—
weeks of estrangement—possibly a permanent estrangement. Yet she knew
she would go on. It wasn’t just wanting to go on. She had to go on. There
was a principle involved even if he could not see it. Clearer and clearer she
had seen her necessity in these past two weeks. She had to waken her own
individuality. She had to live to herself alone for a little. She had to begin to
build defences against sex.
Gage was right. Margaret had sown the seed in his wife. Helen had not
watched her for nothing. She had seen the way that Margaret made no
concessions to herself as a woman, fiercely as she was working for the
establishment of woman’s position. It seemed paradoxical but there it was.
If you were truly to work for woman’s welfare you had to abandon all the
cushions of woman’s protected position, thought Helen—you couldn’t rest
back on either wifehood or motherhood. You couldn’t be lazy. You had to
make yourself fully yourself.
Here was her chance. She hadn’t wanted it but they had insisted. The
women wanted her to go to Chicago—not because she was Mrs. Flandon
but because she was Helen Flandon, herself. A little quiver of delight ran
through Helen as she thought of it. She would see it through. Gage would
surely not persist in his feeling. Surely he would change. He would be glad
when she proved more than just his wife.
She had a strange feeling of having doffed all the years which had
passed since she had left college, a feeling of youth and energy which had
often dominated her then but which had changed in the seven years of her
marriage. Since her marriage she had walked only with Gage and the
children—shared life with them very completely. Now it was not that she
cared less for them (she kept making that very clear to herself) but there
was none the less a new independence and new vigor about her. She felt
with them but she felt without them too.
It hurt her that Gage should feel so injured. But her exhilaration was
greater even than the hurt, because she could not sound the depths of her
husband’s suffering.
Gage went out of the house with no more words. He managed to focus
his mind on the work of the day which was before him but the basic feeling
of pain and anger persisted.
In the middle of the morning Helen called him, reminding him of his
promise to see if Freda Thorstad could be placed. She ignored, as she had a
way of doing, any difference between them.
“Are you going to drag that child in too?” he asked, ungraciously, and
then conscious of his unfairness for he knew quite well that the object was
to place Freda so she could earn her own living, he capitulated.
“Drummond gets back this afternoon. Send Miss Thorstad in about four
and I’ll take her to see him.”
“You’re a dear, Gage,” Helen rang off.
Gage tried to figure out whether something had been put over him or
not. There he let it go and sat in at the club with a chosen crowd before
lunch. It pleased him immensely to see Harry Harris stuck for the lunch. He
kidded him, his great laugh rising and falling.
II
At four Freda came and at her, “You’re sure I’m not too early, Mr.
Flandon?” Gage felt further ashamed of his ungraciousness. Freda was a
little pale, after her difficult night, and it made her rather more attractive
than ever to Gage. He thought she might be worrying over the chance of
getting the new work and was eager to make it easy for her.
“So you want to get into politics like all the rest?” he asked, but
smilingly.
“I want some work to do,” said Freda, “I’d just as soon do anything else.
But I really will have to work or go back to Mohawk and there isn’t
anything for me to do in Mohawk. I don’t much care what I do, to tell you
the truth, Mr. Flandon, so it is work. And I’ve a theory that I might be better
at washing windows than doing anything else.”
“This isn’t much of a job, you know.”
“Probably it’s all I could handle. I’m really a little nervous. Will they ask
for all kinds of qualifications?”
“There’s no ‘they’ There’s only one man and I think all he is looking for
is some one who is discreet and pleasant and can do ordinary secretarial
work.”
“I’m going to learn typewriting evenings,” said Freda.
It was so pleasant to be free from controversial conversation, or from
conversation which glossed over controversy that Gage found himself
feeling much warmer and more cheerful than he had for days. Together they
walked over to the office of the man who had the district chairmanship. Mr.
Drummond was embarrassed. Clearly he was embarrassed by the necessity
of refusing a favor Flandon asked. But he was put to it.
They left the office and at the street corner Freda stopped and held out
her hand.
“Pretty lucky for them that young Whitelaw got there first, I fancy.”
“Have you something else in mind?”
“I’ll try to find something. Maybe I can get a place as somebody’s
companion. Or maybe Miss Duffield will know—”
A tight little line came around Gage’s mouth. He didn’t want Margaret
Duffield running this girl. His dislike was becoming an obsession.
“I wonder,” he said slowly, “if you’d like to come into my office. I could
use another clerk, as a matter of fact. I’m away a great deal and I find that
since my assistant has been handling more law work he is too busy to do
things around the office—handling clients, sorting correspondence and such
things. The ordinary stenographer just messes up everything except a sheet
of carbon paper, and the last good one I had got married, of course. There
wouldn’t be much in it—maybe sixty a month, say—but if you’d like to try
—”
Freda looked at him straightly.
“If you’re just trying to find a job for me, I’d rather not, Mr. Flandon.”
He liked that, and gave her back honesty.
“Of course I would like to see you fixed. I thought this other thing would
work out better. But in all seriousness I could use another clerk in my office
and I’ve been wondering whom I could get. What do you say to trying it for
a month—”
“Let me try it for two weeks and then if I fail, fire me then. Only you’ll
surely fire me if I don’t earn my money?”
“Surely.”
III
Gage went home that night more cheerful than he had been for some
time. He had a mischievous sensation of having rescued a brand from
Margaret Duffield. At dinner Helen asked him if he had attended to Freda’s
case.
“Drummond had other arrangements already.”
“What a shame,” she said, “I wonder where we can place that girl. She is
too good to go back and do nothing in Mohawk. And she really wants to
earn money badly.”
“I placed her,” said Gage, hugging his mischief to himself.
“You did? Where?”
“I took her into my office.”
Helen looked at him in surprise.
“You know that she can’t typewrite?”
“I know. But I can use her. She has a good head and—a nice influence. I
think I’ll like to have her around. Since she has to work she’d be better
there than grubbing in politics.”
“As if your office wasn’t full of politics!”
“Well they’re not Duffield-politics.”
“Whatever you mean by that is obscure,” said Helen, “but don’t eat the
child’s head off, will you?”
CHAPTER X
THE CLEAN WIND
F REDA felt that night that all her dreams, all her vague anticipations of
doing were suddenly translated into activity and reality. In the strangest
way in the world, it seemed to her, so naïve was she about the obscure
ways of most things, she had a room of her own and a job in St. Pierre.
Margaret Duffield had smiled a little at the news of her job but at Freda’s
quick challenge as to whether she were really imposing on Mr. Flandon,
Margaret insisted that she merely found Gage himself humorous. She did
not say why that was so. Together she and Freda went to see the landlady
about a room for Freda. There was one, it appeared, in an apartment on the
third floor. Freda could have it, if she took it at once, and so it was
arranged.
It was a plain little room with one window, long and thin like the shape
of the room, furnished sparsely and without grace, but Freda stood in the
midst of it with her head high and a look of wondering delight in her eyes,
fingering her door key.
Later she went down to Margaret’s apartment to carry up her suitcase.
She found Gregory there. He had not come for lunch as Margaret had
warned her. Seeing him now more clearly than she had the night before,
Freda saw how cadaverous his face was, how little color there was in his
cheeks. She thought he looked almost ill.
They did not hear her come in. Gregory was sitting with his eyes on
Margaret, telling her something and she was listening in a protesting way. It
occurred to Freda that of course they were in love. She had suspected it
vaguely from their attitude. Now she was sure.
She coughed and they looked up.
“It’s my damsel in distress,” said Gregory, rising, “did everything clear
up? Is the ogress destroyed?”
“If she is, poor Miss Duffield had to do it.”
“She wouldn’t mind. She likes cruelties. She’s the most cruel person—”
“Hush, Gregory, don’t reveal all my soul on the spot.”
“Cruel—and over modest. As if a soul isn’t always better revealed—”
“You can go as far as you like later. Just now you might carry Freda’s
suitcase upstairs.”
He took the suitcase and followed them, entering Freda’s little room
which he seemed to fill and crowd.
“So this is where you take refuge from the ogress?”
“It’s more than a refuge—it’s a tower of independence.”
He looked at her appreciatively.
“We’ll agree on many things.”
Margaret asked Freda to come down with them and she went, a little
reluctantly wondering if she were not crowding their kindness. But Gregory
insisted as well as Margaret.
Margaret sat beside a vase of roses on her table and Gregory and Freda
faced her, sitting on the couch-bed. The roses were yellow, pink—delicate,
aloof, like Margaret herself and she made a lovely picture. Gregory’s eyes
rested on her a little wearily as if he had failed to find what he sought for in
the picture. He was silent at first—then, deftly, Margaret drew him out little
by little about the Irish Republic, and he became different, a man on fire
with an idea. Fascinated, stirred, Freda watched him, broke into eager
questioning here and there and was answered as eagerly. They were hot in
discussion when Walter Carpenter came.
There was a moment of embarrassment as if each of the men studied the
other to find out his purpose. Then Margaret spoke lightly.
“Do you want to hear about the Irish question from an expert, Walter?”
“Is Mr. Macmillan an expert?”
“He’s to lecture about it on Friday night.”
“It’s a dangerous subject for a lecture.”
“It’s a dangerous subject to live with,” answered Gregory a little
defiantly.
“Are you a Sinn Feiner, Macmillan?”
“I’m an Irish Republican.”
There was a dignity in his tone which made Walter feel his half-
bantering tone ill judged. He changed at once.
“We’re very ignorant of the whole question over here,” he said, “all we
have to judge from is partisan literature. We never get both sides.”
“There is only one side fit to be heard.”
Freda gave a little gasp of joy at that statement. It brushed away all the
conventions of polite discussion in its unequivocal clearness of conviction.
“I was sure of it,” she said.
Gregory turned and smiled at her. The four of them stood, as they had
stood to greet Walter, Margaret by the side of her last guest, looking
somehow fitting there, Gregory and Freda together as if in alliance against
the others. Then conversation, civilities enveloped them all again. But the
alliances remained. Freda made no secret of her admiration for Gregory.
The openness of his mind, the way his convictions flashed through the talk
seemed to her to demand an answer as fair. Her mind leapt to meet his.
Gregory Macmillan was Irish born, of a stock which was not pure Irish
for his mother was an Englishwoman. It had been her people who were
responsible for Gregory’s education, his public school and early Oxford
life. But in his later years at Oxford his restlessness and discontents had
become extreme. Ireland with its tangle of desires, its heating patriotism,
heating on the old altars already holy with martyrs, had captured his
imagination and ambition. He had gone to Ireland and interested himself
entirely in the study of Celtic literature and the Celtic language, living in
Connacht and helping edit a Gaelic Weekly. Then had come the war, and
conflict for Gregory. The fight for Irish freedom, try as he did to make it his
only end, had become smaller beside the great world confusion and,
conquering his revulsion at fighting with English forces he had enlisted.
Before the war Gregory’s verse had had much favorable comment. He
came out of the war to find himself notable among the younger poets,
acclaimed even in the United States. It seemed preposterous to him. The
machinations of the Irish Republican party absorbed him. Intrigue, plotting,
all the melodrama, all the tragedy of the Sinn Fein policy was known to
him, fostered by him. He had been in prison and after his release had fallen
ill. They had sent him to convalesce in Wales. It was while he was there that
there had come an offer from an American lecture bureau to go on tour in
the States telling of Irish literature and reading his own verse. He laughed at
the idea but others who heard the offer had not laughed. He was to come to
the States, lecture on poetry and incidentally see and talk to various
important Americans who might have Irish sympathies. The Republic
needed friends.
He came reluctantly and yet, once in New York, he had found so many
young literati to welcome him, to give him sympathy and hearing if not
counsel that his spirits had risen. And he had met Margaret Duffield and
drawn by her mental beauty, her curious cold virginity, he had fallen in love
with her and told her he loved her. For a few ardent weeks he wooed her,
she explaining away his love, denying it. Then she had come West and he
had sought his lecture bureau, making them include a lecture in this city
which held her. He had come and found her colder, more aloof than ever,
and now sitting in this room of hers he found a quiet, controlled, cultivated,
middle-aged man who seemed to be on terms of easy and intimate
friendship such as he had not attained.
After a little they divided their conversation. Margaret wanted to talk to
Walter about some complication in local politics—something affecting
Helen’s election. And Freda wanted to hear Gregory talk.
He told her about Ireland, of the men and women who plotted secretly
and constantly to throw off every yoke of sovereignty. He told of the beauty
of the Gaelic tongue, translating a phrase or two for her—talked of the Irish
poets and his friends and she responded, finding use now for all the
thoughts that had filled her mind, the poems she had read and loved. The
light in his deep set eyes grew brighter as he looked at the face turned to
his, meeting his own enthusiasm so unquestioningly. Once he looked at
Margaret curiously. She was deep in her discussion and with a glimmer of a
smile in his eyes he turned again to Freda.
At eleven he took her to her room. They went up the stairs to the door of
her apartment.
“Shall I see you between now and Friday night?”
“I’m going to work to-morrow.” Freda came back to that thought with a
jolt. “I don’t know.”
“To-morrow night? Just remember that I’m alone here—I don’t know
any one but you and Miss Duffield and I don’t want the people in charge of
my lecture to lay hands on me until it’s necessary. You’ve no idea what they
do to visiting lecturers in the provinces?”
“But hasn’t Miss Duffield plans for you?”
“I hoped she might have. But she’s busy, as you see.” His tone had many
implications. “So I really am lonely and you made me feel warm and
welcome to-night. You aren’t full of foolish ideas about friendships that
progress like flights of stairs—step by step, are you?”
“Friendships are—or they aren’t,” said Freda.
“And this one is, I hope?”
They heard a sigh within the apartment as if a weary soul on the other
side of the partition were at the end of its patience. Gregory held out his
hand and turned to go.
But Freda could not let him go. She was swept by a sense of the cruel
loneliness of this strange beautiful soul, in a country he did not know,
pursuing a woman he did not win. She felt unbearably pent up.
Catching his hand in both of hers, she held it against her breast, lifted her
face to his and suddenly surprisingly kissed him. And, turning, she marched
into her room with her cheeks aflame and her head held high. Groping for
the unfamiliar switch she turned on her light and began mechanically to
undress. It seemed to her that she was walking in one of her own storied
imaginings. So many things had happened in the last twenty-four hours
which she had often dreamed would happen to her. Adventures, romantic
moments, meetings of strange intimate congeniality like this with Gregory
Macmillan. She thought of him as Gregory.
Gregory went down the stairs quickly, pausing at Margaret’s door to say
good night. The other man was leaving too and they walked together as far
as Gregory’s hotel. They were a little constrained and kept their
conversation on the most general of subjects. Gregory was absent minded in
his comments but as he entered the hotel lobby he was smiling a little, the
immensely cheered smile of the person who has found what he thought was
lost.
Freda reported for work at the office of Sable and Flandon at half past
eight the next morning. She had not been sure at what time a lawyer’s office
began operations and thought it best to be early so she had to wait a full
hour before Mr. Flandon came in. The offices were a large, well-furnished
suite of rooms. There were three young lawyers in the office, associated
with Mr. Sable and Mr. Flandon, and three stenographers, in addition to a
young woman, with an air of attainment, who had a desk in Mr. Sable’s
office and was known as Mr. Sable’s personal secretary. Freda got some
idea of the organization, watching the girls come in and take up their work.
She became a little dubious as to where she could fit into this extremely
well-oiled machinery and wondering more and more as to the quixotic
whim which had made Mr. Flandon employ her, was almost ready to get up
and go out when Gage came in.
He saw her in a minute and showed no surprise. Instead he seemed to be
anxious to cover up any ambiguity in the position by making it very clear
what her duties were to be. He introduced her to the rest of the office force
as my “personal secretary” at which the Miss Brewster who held a like
position in Mr. Sable’s employ lifted her eyebrows a little. She was given a
desk in a little ante-room outside of Gage’s own office and Gage, with a
stenographer who had done most of his work, went over her duties. She was
to relieve the stenographer of all the sorting of his correspondence, take all
his telephone messages, familiarize herself with all of his affairs and
interests in so far as she could do so by consulting current files and be ready
to relieve him of any routine business she could, correcting and signing his
letters as soon as possible.
At five o’clock she hurried back to her little room to find a letter in her
mail box. It was from her father and at the sight of it she was saddened by
the sense of separation between them. Every word in it, counsel, affection,
humor breathed his love and thought for her. She was still poring over it
when Gregory came to take her to dinner, and forgot to be embarrassed
about the night before.
Gregory had never intended to be embarrassed evidently. He considered
that they were on a footing of delightful intimacy. His voice had more
exuberance in it to-night than she had previously heard. As they went past
Margaret’s door they looked up at her transom. It was dark.
“I hoped she was coming with us,” said Freda.
“She doesn’t want to come with me,” answered Gregory, “and that has
hurt me for a long time, it seems to me, although perhaps it is only weeks.
But it may be just as well. For I could never make her happy.”
“Would it be so hard?”
“I could never make any woman happy,” said Gregory with
extraordinary violence. “Happiness is a state of sloth. But I could live
through ecstasy and through pain with some one who was not afraid. For
this serene stagnancy which seems to be the end-all of most people, I’m no
good. I couldn’t do it, that’s all.”
His head was in the air and he looked, thought Freda, as if he would be
extremely likely to forget about any woman or anything else and go sailing
off in some fantasy of his own, at any time. She remembered him as he had
been, despondent, when she had first met him, last night full of blazing
enthusiasms, to-night blithely independent. It delighted her. She had never
before met a person who adjusted to no routine.
“Let’s walk in peace and watch the clouds and I’ll tell you what an old
Irish poet said of them.”
He could see her chin lift as she listened.
“To have in your mind such a wealth of beauty—what it must mean—to
feel that things do not starve within you for lack of utterance—” Her voice
was blurred into appreciations.
“Why let them starve?” asked Gregory.
“Perhaps because practical meat-and-drink body needs always claim the
nourishment the things of your mind need—and you let the mind go
hungry.”
“That’s it—that’s what people do—but you won’t. I hear it in your voice
—see it in your face. The things in you are too vital to be starved. You can
cripple them but you can’t kill them.”
“I do not know.”
“You must set yourself free.”
Freda smiled ruefully.
“That’s what women are always talking about and what they mean is a
washing machine.”
“That’s no freedom—that’s just being given the run of the prison. Don’t
you see that what I mean is to keep yourself free from all the petty desires
—the little peeping conventions—free for the great desires and pains that
will rush through you some day? You have to be strong to do that. You can
put up wind breaks for emotion so easily. And you don’t want them.”
“It means being very fearless.”
“I have never yet met anything worth fearing except cowardice.”
He stopped. They were in the middle of some sidewalk, neither of them
noticed where.
“Why did you kiss me last night?”
“I wanted to. I’ve not been sorry,” answered Freda. “By all the rules I’ve
learned I ought to be abashed, but you don’t live by rules, so why waste
them on you?”
Her smile was faintly tremulous. His strange, unfamiliar eyes looked
into hers and rested there.
“And we won’t have to spend time talking about love,” he said, half to
himself, “we shan’t wear it threadbare with trying to test its fabric. It comes
like the wind—like God.”
Again they breasted the wind and her hand was fast in his. It was a clean,
cool clasp. Freda felt oddly that she had saved her soul, that she had met an
ultimate.
CHAPTER XI
NEWSPAPER CUTS
T HE State Convention was imminent. In the vast barrenness of the

Auditorium rows upon rows of ticketed chairs were filling up with
delegates, sectional banners waved in the various parts of the big hall,
flags made the background for the speakers, chairs and table.
“The machinery for creating a government is in progress,” said
Margaret, “what do you think of it?”
Helen shook her head.
“Inadequate. When you think why they have come, how they have come,
what destinies they hold in their hands. Would women do it better I wonder,
Margaret?”
“Women are more serious. Perhaps. Anyway we must try it. If we don’t
like that machinery we’ll have to invent another kind.”
“Funny male gathering. Think they all have their women—and their
feeling towards their own women must influence their feeling towards all of
us. Their own women to treat cruelly or kindly—or possessively.”
“They’re on the last lap of their possession,” answered Margaret.
The gallery was filling with women, reporters, spectators with one
interest or another. The men were taking their places, formality settling on
the assembly. The temporary chairman was on the platform, welcoming
them, bowing grandiloquently with a compliment that was inevitable to the
ladies in the gallery. Nominations for a chairman were in order. The
temporary chairman retained his place as he had expected. The committees
on credentials, resolutions, organization, retired and the delegation heard
with some restlessness further exhortation as to the duties which lay before
them and the splendor of opportunity awaiting the party in the immediate
future.
The platform was read. Cheers, a little too well organized and not too
freely spontaneous, punctuated it. The women listened to it attentively,
Margaret frowning now and then at some of its clauses.
It was a long task. On its consummation the convention adjourned for
lunch.
It was mid-afternoon before the business of electing the delegates at
large to the National Convention had been reached. Helen felt her face grow
hot and her heart go a little faster even while she mocked at herself for
those signs of nervousness. Margaret watched as if her finger was on the
pulse of a patient.
Hedley’s name went through nomination as every one had expected.
Then Jensen was on his feet.
He was good. The women admitted that after his first words. He dwelt
upon the fact of suffrage, on the practical differences it made in the
electorate. He spoke of the recognition of women as a privilege. Then with
a reference which Helen had feared must come he spoke of the one woman
whose name is “familiar to us through the fine party loyalty of her husband”
and who is herself “the unspoken choice of hundreds and thousands of
women of this State” as their delegate. Helen heard her name come forth
unfamiliarly, heard the burst of clapping, faced the barricade of glances
with a smile.
There was little doubt about it from the start. What opposition there was
must have decided it unsafe to show its teeth. An hour later a discomfited
man, pushed off the party slate by a woman, edged his way out of the back
of the gallery and the woman was surrounded by a group of men and
women, all anxious to be early in their congratulations, some from sheer
enthusiasm, others from motives more questionable.
“And where is Gage passing the cigars?” asked one man jocularly.
Helen looked around as if in surprise that he was not there.
“He isn’t here, is he?”
She knew he wasn’t. She had known he wouldn’t come, even while she
could not quite kill the hope that he would.
At the door were photographers, even a moving picture man waiting for
the new woman delegates. Margaret dropped Helen’s hand and Helen, on
Mrs. Brownley’s arm, moved past the range of picture-takers with an air of
complete composure. In a moment she was in her car and moving out of
sight. Margaret turned to walk back to her own apartment, complete
satisfaction on her face.
II
Helen entered the house quietly and leaving her gloves and wrap on the
hall bench, went into the kitchen to see how things were going there. There
was a pleasant air of competence about it. The maids were busy and the
dinner in active preparation. Upstairs the nurse had the children. She played
with them a little, a warm sense of satisfaction at her heart. It was so absurd
to choose—to fake a choice. This other work, this other business could be
done without sacrificing anything. Gage was absurd. She was no less a
mother, not a bit less good a housewife because she was a delegate to the
Republican Convention. It took a bit of management, that was all. If she
was treating Gage badly she would feel different.
But there was a guilty feeling which she could not control. He was
unhappy and she the cause. They had been too close for that not to hurt.
At seven o’clock, a little late for dinner, came Gage, a guarded courtesy
in his manner. He asked her pardon for not dressing and handed her a sheaf
of evening papers. She was thankful that they had been issued too early to
contain the news of her triumph. It postponed certain altercations. She
thought suddenly of her barrage of photographers and of what she had
completely forgotten, Gage’s tremendous dislike of having her picture in
the papers.
“I can’t bear the thought of your picture tossed about the country—
looked at casually for an hour and then used as old newspapers are used—to
wrap a package—line a stair-rug—heaven knows what!”
Of course it had appeared occasionally for all of that but Helen had made
the occasions infrequent. She had always liked that prejudice of his. As she
looked at him to-night she thought he looked tired. There were strained
lines around his eyes, and he was very silent.
She said several little things and then, because avoidance of the big topic
seemed impossible, joined him in his silence. He looked at her at last,
smiling a little. It was not the smile of a rancorous man but rather a hurt
smile, a forced smile of one who is going to go through pain wearing it.
“I have been congratulated all the way home on your account, Helen. It
seems to have been a landslide for you.”

Principles of Finance 6Th Edition Besley Test Bank Full Chapter PDF

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Principles of Finance 6Th Edition Besley Test Bank Full Chapter PDF

Uploaded by

Copyright:

Available Formats

Principles of Finance 6th Edition Besley

3. Which of the following statements is correct?

5. Which of the following is a key determinant of operating leverage?

8. Which of the following is a key determinant of financial leverage?

Cengage Learning Testing, Powered by Cognero Page 3

13. Which of the following statements is correct?

Cengage Learning Testing, Powered by Cognero Page 6

19. Which of the following statements is correct?

20. Which of the following statements about cash management is false?

21. Which of the following statements is correct?

Cengage Learning Testing, Powered by Cognero Page 11

26. A firm has the following balance sheet:

27. A firm has the following balance sheet:

Cengage Learning Testing, Powered by Cognero Page 13

Increase in dividends (500,000 × $0.48) = ($240,000)

the new breakeven volume in sales dollars:

increase in SB = $1,805,556 − $1,000,000 = $805,556.

$600,000 − $400,000 = $200,000.

Cengage Learning Testing, Powered by Cognero Page 16

Express P as 1.0 or 100% of price and V and FC as a percent of price

New EBIT = $114,000

Cengage Learning Testing, Powered by Cognero Page 17

Cengage Learning Testing, Powered by Cognero Page 18

Information on the Crum Company:

Net Income $ 110.40

Add'n to R.E. $ 44.16

Current Assets $ 700.00

Total assets $1,000.00

A/P and Accruals $ 150.00

Total Liab & Equity $1,000.00

Growth rate: 50.00% 1.0000

Current Assets $ 700.00 $1,050.00 $1,050.00

Total assets $1,000.00 $1,350.00 $1,350.00

A/P and Accruals $ 150.00 $ 225.00 $ 225.00

Total assets $1,100,000 × 1.10 $1,210,000 $1,210,000

Accruals $ 13,636 × 1.10 $ 15,000 $ 15,000

Cumulative AFN $51,156 $54,573

Trident Food Corporation

Cengage Learning Testing, Powered by Cognero Page 24

46. To forecast the balance sheet, the firm must:

50. Which of the following would generally be considered variable costs?

Cengage Learning Testing, Powered by Cognero Page 32

Cengage Learning Testing, Powered by Cognero Page 34

Cengage Learning Testing, Powered by Cognero Page 35

Cengage Learning Testing, Powered by Cognero Page 38

Cengage Learning Testing, Powered by Cognero Page 42

Cengage Learning Testing, Powered by Cognero Page 43

Cengage Learning Testing, Powered by Cognero Page 44

Cengage Learning Testing, Powered by Cognero Page 45

WORK FOR FREDA

THE CLEAN WIND

T HE State Convention was imminent. In the vast barrenness of the

You might also like