The Degree of Operating Leverage for ABC Inc

question 82

Multiple Choice

The degree of operating leverage for ABC Inc.is 3.5,and the degree of operating leverage for XYZ Corporation is 7.0.According to this information,which firm is considered to have greater business risk?

• A) ABC Inc.
• B) XYZ Corporation.
• C) The degree of operating leverage is not a measure of business risk,so it is not possible to tell which firm has the greater business risk given the above information.
• D) To determine which firm has the greater business risk,we need to know the operating income (NOI or EBIT)of each firm.XYZ Corporation would have less business risk if its operating income is at least twice that of ABC Inc.
• E) None of the above is a correct answer.