A Firm with a Higher Degree of Operating Leverage Would

question 3

True/False

A firm with a higher degree of operating leverage would be considered less risky than a comparable firm with a lower degree of operating leverage.A company with a higher degree of operating leverage will experience larger swings in profit as a result of changes in sales revenue,and so will be considered more risky.

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Definitions:

Market and Book Values

Market value is the current price at which an asset or company can be bought or sold, while book value is the value of an asset according to its balance sheet account balance.

Common Equity

The amount of ownership in a corporation that is held by common shareholders, represented by common stock and retained earnings.

Stock Outstanding

The total shares of a corporation that are currently owned by all shareholders, including share blocks held by institutional investors and restricted shares.

Investor-provided Operating Capital

Funds provided by investors used for daily business operations and long-term growth initiatives.