Operating leverage is:?

The use of fixed costs rather than variable costs

The use of variable costs rather than fixed costs

Low when the company has high fixed costs

The inverse of financial leverage

Total costs less fixed costs

What is the Return on Invested Capital (ROIC) if EBIT is $400,000, tax rate is 25%, and total invested capital is $2m?

15%

20%

12.5%

10%

Firm U has no debt, $20,000 invested capital, and 25% tax rate. Firm L has $10,000 of 12% debt, $20,000 of invested capital, and 25% tax rate. Which of the following is TRUE?

ROIC is much greater for Firm L

U has higher expected ROE because ROIC > r d (1-T)

U has much wider ROE and EPS swings because of fixed interest charges

Firm L has more risk and more variability in ROE and EPS because of fixed interest charges