Which of the Following Is the Correct Interpretation of a Degree

question 40

Multiple Choice

Which of the following is the correct interpretation of a degree of operating leverage of 5?

• A) Operating leverage of 5 means that sales can decrease by 5% before the firm's current level of sales will hit the break-even point.
• B) Operating leverage of 5 means that if sales increase by 5% the firm will hit its break-even point.
• C) Operating leverage of 5 means that if sales increase by 5%, there will be a 25% increase in the firm's pretax profit.
• D) Operating leverage of 5 measures the degree of debt employed by the firm's debt structure.
• E) Operating leverage of 5 means that the company would need to increase sales by 5 times in order to hit its break-even point.

---

Definitions:

Negative Correlation

A relationship between two variables where one variable increases as the other decreases, and vice versa.

Computer Technology

The use of computers and software to manage information, including the development, maintenance, and use of computer systems, software, and networks for processing and distributing data.

Anonymity

The state of being anonymous, where an individual's identity is not known or is deliberately concealed.

Descriptive Methods

Research methods that involve observing and describing behavior without necessarily determining cause and effect relationships.