Which of the Following Statements About Financial Leverage Is True

question 7

Multiple Choice

Which of the following statements about financial leverage is true?

• A) Financial leverage is the responsiveness of the firm's EBIT to fluctuations in sales.
• B) Financial leverage involves the incurrence of fixed operating costs in the firm's income stream.
• C) Financial leverage is the responsiveness of the firm's EPS to fluctuations in EBIT.
• D) Financial leverage reduces a firm's risk.

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Definitions:

Managerial Accountant

A professional who focuses on providing financial information within a company to assist in decision making and financial planning.

Operations

Refers to the daily activities involved in running a business, which can include production, marketing, and product development.

Variable Costs

Costs that change in proportion to the volume of goods or services produced.

Per-unit Basis

A method of calculation or evaluation by considering individual units or items, allowing for analysis or comparison.