When Will a Firm's Degree of Operating Leverage Be at Its

question 51

Multiple Choice

When will a firm's degree of operating leverage be at its highest level?

• A) When sales is equal to zero
• B) When earnings per share is equal to one
• C) When fixed costs are equal to variable costs
• D) When variable costs are more than sales
• E) When EBIT is equal to zero

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Definitions:

Internal Rate

The rate of return that makes the net present value of all cash flows from a particular project equal to zero.

Payback Period

The length of time that it takes for a project to fully recover its initial cost out of the net cash inflows that it generates.

Investment

Allocation of capital or resources to assets with the expectation of generating profit or income.

Required Rate

The minimum acceptable return on an investment deemed necessary by an investor or business.