True and False

1. The degree to which the firms costs are fixed as opposed to variable will affect the amount of financial risk.

2. The degree of financial leverage (DFL) equation is: DFL = The percentage changes in EPS x The percentage changes in EBIT.

3. The degree of operating leverage (DOL) is equal to Percent Change in EBIT/Percent Change in Sales.

4. Firms that face high levels of business risk can better afford more financial risk.

5. Financial risk refers to the probability that the firm will be unable to meet its fixed financing obligations which includes both interest and preferred dividends.