Question
5. Which of the following statements is correct? A-- All the answers are correct. B-- A more direct method of calculating the DOL is to
5. Which of the following statements is correct?
A-- All the answers are correct.
B-- A more direct method of calculating the DOL is to use the following equation is DOL = (Sales - Variable Costs)/EBIT.
C-- Because the amount of debt is determined by managerial choice, the business risk that a firm faces is also determined by management.
D-- Fixed costs are those costs that are expected to change at the same rate as the firms sales.
E-- If a firms operating costs are all variable, then any variation in sales will be less than the variation in EBIT.
6. Which of the following statements is correct?
A-- All the answers are correct.
B-- The degree of financial leverage (DFL) can be found by dividing the percentage changes in EPS by the percentage changes in EBIT.
C-- The degree of operating leverage (DOL) can be found by dividing the percentage changes in EPS by the percentage changes in EBIT.
D-- If a 10% change in sales results in a 10% change in EBIT, we would say that the degree of operating leverage (DOL) is 0.5.
E-- The more variable a firms revenues relative to its costs, the less variable its EBIT will be.
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