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Epitome Analysts Resources (EAR) has provided the following information about three companies: Company Degree of Operating Leverage (DOL) Degree of Financial Leverage (DFL) Acme 1.5

Epitome Analysts Resources (EAR) has provided the following information about three companies:

Company Degree of Operating Leverage (DOL) Degree of Financial Leverage (DFL)

Acme 1.5 6.0

Apex 3.0 4.0

Alps 5.0 2.0

Which company would be considered riskiest? Why?

a.

Apex is the riskiest because it has the highest degree of total leverage (DTL) among the three firms.
b.

Alps is the riskiest because it has the highest DOL among the three firms.
c.

Acme is the riskiest because its DFL = 6.0, which is the highest leverage associated with any of the three firms.

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