Operating Leverage May Be Defined as the Potential Use of Fixed

question 203

True/False

Operating leverage may be defined as the potential use of fixed operating costs to magnify the effects of changes in sales on the firm's earnings before interest and taxes (EBIT).

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Definitions:

Market Rate

The current price or interest rate at which an asset or service can be bought or sold in a particular market.

Secured Bond

Specific assets are pledged as a guarantee of repayment at maturity.

Guarantee Repayment

The obligation of the guarantor to pay back the debt in case the debtor fails to make payments.

Specific Assets

Assets that are designated for a specific use or held to meet particular obligations, not readily used for other purposes.