1. Which of the following statements is true about operating leverage of a firm?

1. It is the portion of stockholders' risk, over and above basic business risk.
2. It refers to the extent to which fixed-income securities (debt and preferred stock) are used in a firm's capital structure.
3. It refers to the presence of fixed operating costs that do not change when the level of sales changes.
4. It is the ability to borrow money at a reasonable cost when good investment opportunities arise.