Which of the Following Is True of Financial Leverage

question 109

Multiple Choice

Which of the following is true of financial leverage?

• A)It affects the sensitivity of net income to changes in sales.
• B)It arises from the use of debt financing.
• C)It is increased by an increase in operating leverage.
• D)a and b

Grasp the conditions under which perfectly competitive firms decide to produce or shut down in the short run.

Recognize the role of price, average total cost, and marginal cost in determining a firm's profitability.

Distinguish between the short run and long run in perfectly competitive markets.

Understand the implications of homogeneous products in perfectly competitive markets.

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Definitions:

Margin

This is the difference between the selling price of a product and its cost, expressed as a percentage of the selling price.

Turnover

The speed at which a company's stock or assets are rotated or disposed of over a specific timeframe.

Return On Investment

An indicator used to assess the gain or loss generated from an investment relative to its cost.

Delivery Cycle Time

The period from when a customer order is received to when the finished product is shipped.