Because the Degree of Total Leverage Is Multiplicative and Not

question 48

Multiple Choice

Because the degree of total leverage is multiplicative and not additive, when a firm has very high operating leverage it can moderate its total risk by ________.

• A) increasing sales
• B) using a higher level of financial leverage
• C) increasing EBIT
• D) using a lower level of financial leverage

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Definitions:

Proprietorship Form

A business structure owned by a single individual where there's no legal distinction between the owner and the business.

Raising Money

Raising money involves securing funds for a company or project through various means like debt, equity, or grants.

Securities

Financial instruments that represent ownership (stocks), a creditor relationship (bonds), or rights to ownership (derivatives) that can be bought and sold.

Future Cash Flows

Projected cash receipts and payments over a certain period, considered in investment analysis to determine an asset's present value.