If Company a Has a Higher Degree of Operating Leverage

question 62

Multiple Choice

If company A has a higher degree of operating leverage than company B, then:

• A) company A has higher variable expenses.
• B) company A's profits are more sensitive to percentage changes in sales.
• C) company A is more profitable.
• D) company A is less risky.

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Definitions:

Investee

A company or entity in which an investor holds an interest, typically through ownership of shares.

Acquisition Cost

The total cost associated with acquiring an asset or investment, including the purchase price and all related expenses.

Due Diligence Fees

Costs associated with the research and analysis conducted before entering into an agreement or transaction.

Fair Value

The financial gain on unloading an asset or the financial duty to convey a liability in a coordinated market activity at the established valuation date.