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ABC Corporation has a combined leverage ratio of 2.5. If the company's financial leverage ratio is 1.8, what is the company's operating leverage ratio?a.3.3b.0.7c.1.4d.1.0

Question

ABC Corporation has a combined leverage ratio of 2.5. If the company's financial leverage ratio is 1.8, what is the company's operating leverage ratio?a.3.3b.0.7c.1.4d.1.0

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Solution

The combined leverage ratio is calculated by multiplying the operating leverage ratio and the financial leverage ratio.

So, if ABC Corporation's combined leverage ratio is 2.5 and its financial leverage ratio is 1.8, we can find the operating leverage ratio by dividing the combined leverage ratio by the financial leverage ratio.

Operating Leverage Ratio = Combined Leverage Ratio / Financial Leverage Ratio

Operating Leverage Ratio = 2.5 / 1.8

Operating Leverage Ratio = 1.4

So, the answer is c. 1.4.

This problem has been solved

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