Since the use of leverage can benefit a fum when times are good, a high degree of leverage is typically considered optimal by firms. True false
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- If a firm is using financial leverage successfully, the ROE should be a. higher than the profit margin b. higher than ROA c. lower than if no leverage were used d. higher than if no leverage were usedInterpret the effect on operating leverage as a firm’s scale of operations moves in a favorable manner above the break-even pointBriefly 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.
- A very high degree of operating leverage (DOL) indicates that a firm: A. has high fixed costs.B. has a high net income.C. has high variable costs.D. is operating close to its breakeven point.Explain this statement: Using financial leverage has both good and bad effects.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.Can you please give some examples of firms whereby a positive relationship exists between operating leverage and financial leverage?Is it true or false that for a given profit margin and turnover ratio, a greater leverage ratio will result in a higher ROE?
- Explain how profits or losses can be magnified for a firm with high operating leverage as opposed to a firm with lower operating leverageUnder 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.Which of the following statements about operating leverage is NOT true? Group of answer choices Operating leverage predicts the effect of fixed costs on operating income when sales volume changes. A higher proportion of fixed cost in a cost structure results in higher operating leverage. The higher the operating leverage, the higher the risk of loss when sales volume decreases. A higher proportion of fixed cost in a cost structure results in lower operating leverage.
