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Airlines offer an example of an industry in which the degree of operating leverage is fairly high. Why
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- Can you please give some examples of firms whereby a positive relationship exists between operating leverage and financial leverage?Briefly explain the tradeoff hypothesis and how it is related to the long-run survival of a firm? “ One type of leverage affects both EBIT and EPS. The other type affects only EPS”. Explain this statement.If NUBD Company achieves its projections, what will be its degree of operating leverage?
- Explain how profits or losses can be magnified for a firm with high operating leverage as opposed to a firm with lower operating leverageIf a company chooses to minimize WACC, what will be the effect on financial flexibility?Under which of the following conditions could the overuse of financial leverage be detrimental to the firm? Multiple Choice In a stable industry. When there is cyclical demand for the firm's products. During an upswing in the business cycle. When there is low interest cost compared to return on assets.
- What do you think is the relationship between a firm’s operating leverage and its financial leverage? Do you think the two measures are positively correlated, negatively correlated, or unrelated? Explain your answer.Which of the following statements about operating leverage is false? a. Operating leverage measures how operating income will be affected by changes in sales b. The degree of operating leverage is higher for companies with lower fixed costs c. Keeping all factors constant, the higher the contribution margin, the higher the operating leverage. d. All of the given answers are true. e. If the degree of operating leverage higher for a company, this means that the company is more risky than another company with low degree of operating leverage.Why would a company want to know their operating leverage when they can already calculate the number of units that need to be sold to reach a desired level of profit?
- Interpret the effect on operating leverage as a firm’s scale of operations moves in a favorable manner above the break-even pointSince the use of leverage can benefit a fum when times are good, a high degree of leverage is typically considered optimal by firms. True falsethe link between short-run average costs and long-run average costs? Explain the association between return to scale and economies of scale and suggest the potential sources of internal and external economies of scale. Why might firms face diseconomies of scale and shutdown/break-even situations in the long run?