Which of the Following Statements About Combined (Operating & Financial)leverage

question 56

Multiple Choice

Which of the following statements about combined (operating & financial) leverage is true?

• A) If a firm employs both operating and financial leverage, any percent change in sales will produce a larger percent change in earnings per share.
• B) A firm that is in a capital-intensive industry should use a higher level of financial leverage than a firm that employs low levels of operating leverage.
• C) Usage of both operating and financial leverage reduces a firm's risk.
• D) High operating leverage and high financial leverage offset one another, meaning that if sales increase by 10%, then EPS will also increase by 10%.

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Definitions:

Different

means not being the same as another or each other.

Importance

denotes the significance or value attached to something.

Interns

are individuals, often students, who work temporarily in a job to gain work experience or satisfy requirements for a qualification.

Reflect

means to think deeply or carefully about something.