The Degree of Operating Leverage Has Which of the Following

question 8

Multiple Choice

The degree of operating leverage has which of the following characteristics?

• A) The closer the firm is operating to breakeven quantity,the smaller the DOL.
• B) A change in quantity demanded will produce the same percentage change in EBIT as an identical change in price per unit of output,other things held constant.
• C) The DOL is not a fixed number for a given firm,but will depend upon the time zero values of the economic variables Q (Quantity),P (Price),and V (Volume).
• D) The DOL relates the change in net income to the change in net operating income.
• E) If the firm has no debt,the DOL will equal 1.

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Definitions:

Cash Flow Stream

A series of cash inflows and outflows over a period of time, often used in financial analysis and valuation.

Effective Return

The actual yield or rate of return achieved by an investment, accounting for compounding interest or reinvestments, as opposed to the nominal rate.

Compounded Daily

Refers to the process where interest earned is added to the principal daily, allowing the investment to grow at an accelerated rate due to the effects of compounding.

EAR

Effective Annual Rate, the interest rate on an investment or loan that considers compounding within the year.