Asked by
Marina Misitano
on Dec 01, 2024
Verified
A firm's degree of financial leverage is 1.5 and the degree of operating leverage is 2.0. What is their degree of total leverage?
A) 9.0
B) 3.0
C) 4.5
D) None of the above
Financial Leverage
The use of borrowed funds to increase a company's investment potential, which can amplify both potential returns and potential losses.
Operating Leverage
Operating leverage refers to the degree to which a company or project can increase operating income by increasing revenue.
Total Leverage
The combination of operating leverage (affecting operating income) and financial leverage (affecting net income), indicating total risk.
- Evaluate and compute financial indices and leverages, for instance, Earnings Per Share, Degree of Financial Leverage, and Return on Equity.
Verified Answer
LM
Learning Objectives
- Evaluate and compute financial indices and leverages, for instance, Earnings Per Share, Degree of Financial Leverage, and Return on Equity.