Which of the Following Is the Correct Interpretation of a Degree

question 40

Multiple Choice

Which of the following is the correct interpretation of a degree of operating leverage of 5?

• A) Operating leverage of 5 means that sales can decrease by 5% before the firm's current level of sales will hit the break-even point.
• B) Operating leverage of 5 means that if sales increase by 5% the firm will hit its break-even point.
• C) Operating leverage of 5 means that if sales increase by 5%, there will be a 25% increase in the firm's pretax profit.
• D) Operating leverage of 5 measures the degree of debt employed by the firm's debt structure.
• E) Operating leverage of 5 means that the company would need to increase sales by 5 times in order to hit its break-even point.

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Definitions:

Competence

The ability of an individual to perform a job or task correctly, or in legal terms, the capacity to stand trial or make legally binding decisions.

Nondisclosure

An agreement in which one party agrees to keep certain information confidential and not to share it with third parties.

False Assertion

False Assertion occurs when an inaccurate or untrue statement is made, particularly in contexts where the truthfulness of statements is critical, such as in contracts or testimonials.

Nondisclosure

An agreement or principle that restricts the sharing of confidential information or secrets with unauthorized parties.