Asked by
jackie manzano
on Dec 01, 2024Verified
A firm's degree of financial leverage is 2 and the degree of operating leverage is 2.5. What is their degree of total leverage?
A) 6.0
B) 4.5
C) 5.0
D) None of the above
Degree Of Total Leverage
A ratio that measures the sensitivity of a company's earnings per share to fluctuations in its operating income due to changes in its capital structure.
Financial Leverage
The use of borrowed funds to increase an investment's potential return, which also increases the risk of loss.
Operating Leverage
A measure of how sensitive a company's operating income is to changes in its revenue, indicating the proportion of fixed versus variable costs.
- Acquire knowledge about the theory of operating leverage and its influence on an organization's earnings before interest and taxes (EBIT).
- Estimate and interpret the degree of financial leverage for a corporation.
Verified Answer
MN
Learning Objectives
- Acquire knowledge about the theory of operating leverage and its influence on an organization's earnings before interest and taxes (EBIT).
- Estimate and interpret the degree of financial leverage for a corporation.