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:

Measures Central Tendency

Statistics that describe the center of a data distribution, including mean, median, and mode.

Mean

The average value of a series of numbers, found by taking the sum of the numbers and dividing this sum by the quantity of numbers in the series.

Median

In a sequence of numbers sorted from lowest to highest, the median represents the number that lies at the midpoint.

Mode

The commonly encountered value within a series of data.