If Debt Financing Is Used,which of the Following Is Correct

question 77

Multiple Choice

If debt financing is used,which of the following is correct?

• A) The percentage change in net operating income is greater than a given percentage change in net income.
• B) The percentage change in net operating income is equal to a given percentage change in net income.
• C) The percentage change in net operating income depends on the interest rate charged on debt.
• D) The percentage change in net operating income is less than the percentage change in net income.
• E) The degree of operating leverage is greater than 1.

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Definitions:

Inferior Goods

Goods whose demand decreases when consumers' income increases. They are the opposite of normal goods, which see increased demand with higher income.

Income Increase

A rise in the amount of money received, especially by workers or businesses, over a specific period.

Demand Curve

A graph showing the relationship between the price of a good and the quantity of that good consumers are willing to buy.

Substitute

a product or service that can be used in place of another to satisfy similar needs or desires.