If a Firm Has the Lowest Possible Degree of Operating

question 23

Multiple Choice

If a firm has the lowest possible degree of operating leverage and the lowest possible degree of financial leverage, then

• A) DOL equals 1, and DFL equals 0.
• B) DOL equals 0, and DFL equals 1.
• C) DOL equals 1, and DFL equals 1.
• D) None of the options

Compute consolidated net income in various ownership scenarios.

Understand the treasury stock approach in accounting for a subsidiary's investment in parent company stock.

Identify conditions under which companies can file consolidated income tax returns.

Recognize the implications of separate versus consolidated income tax filings.

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Definitions:

Standard Deviation

A statistical measure that quantifies the variation or dispersion of a set of numerical data from its mean.

Zero Standard Deviation

A statistical measure indicating that all values within a data set are identical.

Risk-Free Asset

A financial instrument that is considered to have no risk of financial loss, typically government bonds.

Standard Deviation

A statistic that measures the dispersion or variability of a set of data values around the mean (average) of those values.