Answer the following questions:

1. Why does a conservative approach to operating leverage inhibit a firms profitability? Explain the concept of operating leverage and mention the roles of contribution margin and break-even point.

2. What types of firms or what industry sectors might it be prudent to limit operating leverage? Why?

3. Why would a firm ever issue stock or find external sources of equity if it has the opportunity to leverage with debt (use financial leverage)?

4. Explain "leverage" as it related to the financial crisis of 2008/2009.