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in page 568 at the "focus on ethics", answer the question below that
11. By using the formula for DTL in Equation 13.9, it is possible to get a negative value for the DTL if the EPS for the base level of sales is negative. For our purposes, rather than show absolute value signs in the equation, we instead assume that the base-level EPS is positive. PART SIX Long-Term Financial Decisions EXAMPLE 13.15 Substituting the values calculated for DOL and DFL, shown on the right-hand side of Table 13.7, into Equation 13.10 yields DTL=1.25.0=6.0 The resulting degree of total leverage is the same value that we calculated directly in the preceding examples. The Focus on Ethics box considers some ethical issues relating to the topic of leverage. CHAPTER 13 Leverage and Capital Structure 569 REVIEW QUESTIONS MyLab Finance Solutions 13-1 What does the term leverage mean? How are operating leverage, financial leverage, and total leverage related to the income statement? 13-2 What is the operating breakeven point? How do changes in fixed operating costs, the sale price per unit, and the variable operating cost per unit affect it? 13-3 What is operating leverage? What causes it? How do you measure the degree of operating leverage (DOL) ? 13-4 What is financial leverage? What causes it? How do you measure the degree of financial leverage (DFL)? 13-5 What is the general relationship among operating leverage, financial leverage, and the total leverage of the firm? Do these types of leverage complement one another? Why or why not? LG3 LG 413.2 The Firm's Capital Structure Capital structure is one of the most complex areas of financial decision making because of its interrelationship with other financial decision variables. Poor 11. By using the formula for DTL in Equation 13.9, it is possible to get a negative value for the DTL if the EPS for the base level of sales is negative. For our purposes, rather than show absolute value signs in the equation, we instead assume that the base-level EPS is positive. PART SIX Long-Term Financial Decisions EXAMPLE 13.15 Substituting the values calculated for DOL and DFL, shown on the right-hand side of Table 13.7, into Equation 13.10 yields DTL=1.25.0=6.0 The resulting degree of total leverage is the same value that we calculated directly in the preceding examples. The Focus on Ethics box considers some ethical issues relating to the topic of leverage. CHAPTER 13 Leverage and Capital Structure 569 REVIEW QUESTIONS MyLab Finance Solutions 13-1 What does the term leverage mean? How are operating leverage, financial leverage, and total leverage related to the income statement? 13-2 What is the operating breakeven point? How do changes in fixed operating costs, the sale price per unit, and the variable operating cost per unit affect it? 13-3 What is operating leverage? What causes it? How do you measure the degree of operating leverage (DOL) ? 13-4 What is financial leverage? What causes it? How do you measure the degree of financial leverage (DFL)? 13-5 What is the general relationship among operating leverage, financial leverage, and the total leverage of the firm? Do these types of leverage complement one another? Why or why not? LG3 LG 413.2 The Firm's Capital Structure Capital structure is one of the most complex areas of financial decision making because of its interrelationship with other financial decision variables. Poor
