When a Firm Has a High Degree of Operating Leverage

question 81

Multiple Choice

When a firm has a high degree of operating leverage:

• A) Its projected cash flows are known with great certainty.
• B) It is highly susceptible to damage created by forecasting errors.
• C) Its cash flows remain relatively constant regardless of its sales level.
• D) It will have a relatively low level of fixed assets.
• E) It will low fixed costs and high variable costs.

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Definitions:

Auto Insurance

A type of insurance policy that protects the policyholder against financial loss in the event of an accident involving a vehicle they own, covering liabilities, damages, and possibly medical expenses.

Hole

An opening through something or an empty space in a solid body or surface.

Axle Breaks

A mechanical failure where the rod or spindle passing through the center of a wheel or group of wheels fractures or splits, compromising vehicle safety.

Damages

Compensation awarded through legal means to a person who has suffered loss or harm due to the wrongful act of another.