A Firm's Degree of Financial Leverage Is 2 and the Degree

question 90

Multiple Choice

A firm's degree of financial leverage is 2 and the degree of operating leverage is 2.5. An uncertain economic outlook could mean a 10% reduction in the current level of sales. The firm is considering an increase of its degree of financial leverage to 3 by issuing additional debt. The degree of total leverage suggests that the sales volatility could result in a decrease in EPS of as much as:

• A)5.5% if the additional debt is not issued.
• B)7.5% if the additional debt is issued.
• C)55% if the additional debt is issued.
• D)75% if the additional debt is issued.

---

Definitions:

Physical Differences

Variations in the bodily characteristics among individuals, including height, weight, strength, and appearance.

Coronary Disease

A type of heart disease resulting from the build-up of plaque in the coronary arteries, which can lead to reduced blood flow to the heart muscle and potentially heart attacks.

Physical Disorders

Conditions affecting the body's structure or function that are not due to a mental health issue.

Mental Disorders

A wide range of conditions that affect mood, thinking, and behavior, often characterized by distress and impairment in functioning.