When a company adds more debt to its capital structure why does this increase the risk of the firm? a. Because operating leverage involves the use of assets with fixed expenses which will not go down if sales decrease b. Because operating leverage involves the use of debt with fixed interest payments which will not go down if sales decrease c. Because financial leverage involves the use of assets with fixed expenses which will not go down if sales decrease d. Because financial leverage involves the use of debt with fixed interest payments which will not go down if sales decrease What is leverage! a. The use of assets with fixed expenses to boost potential returns b. The use of debt with fixed expenses to boost potential returns c. The use of preferred stock with fixed dividends to boost potential returns d. All the above are forms of leverage When is operating leverage good for a company? a. When sales are increasing b. When sales don't change c. When sales are decreasing d. Operating leverage is never good for a company Which of the following is consider a fixed expense? a. Hourly wages b. Interest on a bond c. Cost of goods sold d. Taxes Why does the use of operating leverage increase the potential return to stockholders? a. As sales go up, assets with fixed expenses do not change, and this helps profitability b. As sales go down, assets with variable expenses go down and this helps profitability c. As sales go up, assets with fixed expenses go down and this helps profitability d. As sales go up, debt interest payments are fixed and this helps profitability