If a company has high operating leverage, what would be the likely effect on its risk and return?a.Lower risk and higher returnb.Higher risk and lower returnc.Higher risk and higher returnd.Lower risk and lower return

How does operating leverage impact a company?a.It increases fixed costs and reduces riskb.It only affects short-term financial decisionsc.It decreases variable costs and increases riskd.It has no impact on costs or riskCLEAR MY CHOICE

Which of the following statements about Operating Leverage and Risk from the lecture are TRUE:Someone with relatively high fixed costs and low variable costs will have a high level of operating leverage and a low risk of making a large loss if their income falls.Someone with relatively low fixed costs and high variable costs will have a low level of operating leverage and a high risk of making a large loss if their income falls

How does a high degree of financial leverage affect a company during economic downturns?a.It increases operational efficiencyb.It amplifies lossesc.It reduces lossesd.It has no impact on losses

A CEO explains “we can increase our expected return on equity by increasing leverage.” Which of the following is the best response to this statement?A.This statement is not necessarily true—it depends upon a whole range of factors.B.This is false, equity holders are residual claimants and increased interest payments will leave less profit to distribute to shareholders.C.This is true, but the higher returns will be associated with increased risk.D.This is always true since leverage makes the firm more disciplined and increases returns.

How does a decrease in sales affect a company with high operating leverage?a.It does not affect profitsb.Profits decrease at a proportionally higher ratec.The impact on profits is minimald.Profits decrease at a proportionally lower rate