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:

Tacos

A traditional Mexican dish consisting of a folded or rolled tortilla filled with various mixtures, such as seasoned meats, beans, cheese, and vegetables.

Budget Line

A graphical representation of all possible combinations of two goods that can be purchased at given prices and within a consumer's budget.

Horizontal Axis

In a graph or chart, the x-axis, which usually represents the independent variable or time scale.

Purchases

Transactions in which goods or services are acquired in exchange for money, indicating consumer buying behavior or demand in an economy.