Which of the Following Statements Concerning a Firm's Degree of Financial

question 47

Multiple Choice

Which of the following statements concerning a firm's degree of financial leverage (DFL) is correct?

• A)The DFL affects the earnings before interest and taxes of the firm.
• B)The DFL is defined as the percentage change in net operating income that results from a given percentage change in sales.
• C)A lower DFL suggests that higher risk is associated with the firm's normal operating activities.
• D)The DFL directly affects the operating section of the income statement.
• E)A higher DFL suggests that higher risk is associated with the firm's mix of debt and equity financing.

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Definitions:

Voting Scheme

A method or system used for casting votes and determining the outcome in an election or decision-making process.

Individual Preferences

The specific likes, dislikes, desires, and needs that dictate the choices made by an individual, often influencing economic decisions and behaviors.

Majority Rule

A decision rule that selects alternatives which have a majority, that is, more than half the votes.

Logrolling

The practice of exchanging favors, especially in politics by reciprocal voting for each other's proposed legislation.