BREAK A SWEAT
When contribution margin just covers fixed costs.
What is cash break-even?
The level of reliance a company places on fixed costs.
What is operating leverage?
When a firm cannot finance all of its positive NPV projects.
What is capital rationing?
What is contribution margin?
A market in which security prices reflect all available information.
What is an efficient market?
When contribution margin just covers depreciation.
What is accounting break-even?
The percentage change in OCF relative to the percentage change in quantity sold.
What is Degree of Operating Leverage (DOL)?
When a firm must allocate a certain amount of financing for capital budgets to each business unit.
What is soft rationing?
Risk that errors in estimating cash flows will result in incorrect investment decisions.
What is forecasting risk?
The idea that actual markets are efficient, for all practical purposes.
What is the Efficient Market Hypothesis?
When contribution margin just covers the required rate of return.
What is financial break-even?
What a company is said to be, when they have high fixed costs.
What is capital intensive?
When a firm cannot raise the financing for projects under any circumstances.
What is hard rationing?
The scenario that uses the lowest price and quantity estimates and the highest cost estimates.
What is the worst case scenario?
The form of market efficiency in which prices reflect all information, even private insider information.
What is strong form?
What OCF equals, at cash break-even.
What is zero?
How a company can lower DOL.
What is lower fixed costs?
The best way to allocate funds under soft rationing.
What is the profitability index?
The scenario that uses the most likely estimates for all variables.
What is the base case scenario?
The form of market efficiency in which prices reflect all public information, but not insider information.
What is semistrong?
What OCF equals, at accounting break-even.
What is depreciation?
9%, when change in Q is 6% and DOL is 1.5
What is change in OCF?
The term in a bond indenture that may prevent a firm from raising more capital.
What is a protective covenant?
The type of analysis where only one variable is changed at a time.
What is sensitivity analysis?
The form of market efficiency in which prices reflect all market trading information like historical prices.
What is weak form?