Because the Degree of Total Leverage Is Multiplicative and Not

question 47

Multiple Choice

Because the degree of total leverage is multiplicative and not additive, when a firm has very high operating leverage it can moderate its total risk by

• A) using more financial leverage.
• B) increasing EBIT.
• C) using a lower level of financial leverage.
• D) increasing sales.

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Definitions:

Avoidance

A behavioral or cognitive strategy aimed at preventing unpleasant emotions, confrontation, or failure by staying away from certain tasks, situations, or interactions.

Authoritative Command

A leadership style characterized by making decisions alone and expecting subordinates to follow instructions without question.

Superior Skill

Exceptional ability or expertise in a particular activity or field, often surpassing average standards.

Conflict Resolution

The process of identifying, addressing, and resolving disputes in a manner that is satisfactory to all parties involved.