All of the Following Statements Are Correct Except

question 81

Multiple Choice

All of the following statements are correct except:

• A)A firm's business risk is measured by its variability in EBIT over time and is affected by several factors, including the business cycle, competitive pressures, and the firm's operating leverage or its level of fixed operating costs.
• B)The degree of financial leverage measures the sensitivity of earnings per share to changes in EBIT.
• C)The degree of combined leverage is the percentage change in gross profit that results from a 1 percent change in sales volume.
• D)The degree of combined leverage is simply the product of its degree of operating leverage and its degree of financial leverage.
• E)All of the above statements are correct.

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Definitions:

Miller-Orr Model

A financial model used to manage cash flows and determine the optimal cash balance levels for a company, focusing on cost minimization.

Lower Limit

The minimum value in a range of acceptable or possible values, often used in statistics and quality control.

Target Cash Balance

The ideal amount of cash that a company aims to maintain in order to manage daily financial operations and contingencies effectively.

Collection Float

The amount of time it takes for money from checks or other types of payments to be processed and available in the company’s account.