What Happens to a Firm with High Operating Leverage When

question 87

Multiple Choice

What happens to a firm with high operating leverage when the overall level of sales is very high?

• A)the firm has higher levels of fixed costs.
• B)the firm will enjoy high profits.
• C)the firm will not break even in accounting terms.
• D)the firm will have a reduced level of fixed costs.

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Definitions:

Cash Dividends

A disbursement of profits from a company to its owners or investors, usually as a profit-sharing mechanism.

Common Stock

Common Stock represents units of ownership in a corporation, giving holders voting rights and a share in the company's profits through dividends.

Asset

An economic resource owned or controlled by an individual, corporation, or country, expected to provide future benefits.

Par Value

The face value of a bond or stock as stated by the issuing company.