Question # 3

Which of the following statements is NOT true about operating leverage?

a. The higher a firm's operating leverage, the higher its level of business risk.

b. A high degree of operating leverage implies that a small change in sales results in a large change in return on invested capital.

c. A firm's operating leverage significantly influences its capital structure decisions.

d. The lower the percentage of total costs that are fixed, the higher degree of operating leverage a firm will have.

e. Projects that utilize alternative production methods often result in different degrees of operating leverage.