If Debt Financing Is Used,which of the Following Is Correct

question 77

Multiple Choice

If debt financing is used,which of the following is correct?

• A) The percentage change in net operating income is greater than a given percentage change in net income.
• B) The percentage change in net operating income is equal to a given percentage change in net income.
• C) The percentage change in net operating income depends on the interest rate charged on debt.
• D) The percentage change in net operating income is less than the percentage change in net income.
• E) The degree of operating leverage is greater than 1.

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Definitions:

Current Assets

Assets that are expected to be converted into cash, sold, or consumed within one year or the operating cycle, whichever is longer.

Hourly Wage Rate

The amount of money paid to an employee for every hour worked, typically applied to part-time or contract workers.

Gross Pay

The total amount earned by an employee before any deductions or taxes are taken out.

Medicare Tax

A federal tax that helps fund the Medicare program, which provides health insurance for individuals who are 65 years old and older or who meet other specific criteria.