Which of the Following Statements Regarding Operating Leverage Is Correct

question 101

Multiple Choice

Which of the following statements regarding operating leverage is correct?

• A) All else the same, firms with high operating leverage have higher total fixed costs.
• B) It is generally easier to decrease operating leverage than it is to increase it.
• C) All else the same, operating leverage will rise as output increases.
• D) In order to calculate the degree of operating leverage all that is needed are variable costs and operating cash flows.
• E) All else the same, the degree of operating leverage rises as the price per unit is increased.

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Definitions:

Moody's Baa

Moody's Baa rating denotes bonds that are considered medium-grade, subject to moderate credit risk, and as such, investors should investigate further.

S&P's BBB

A credit rating by Standard & Poor's that indicates an investment grade with moderate credit risk.

Bond Ratings

A system used to assess the credit quality and risk level of bonds, typically assigned by rating agencies.

Sinking Fund Provisions

A requirement for a debtor to set aside funds at regular intervals to repay a bond or loan before its maturity in order to ensure the safety of the investment for creditors.