Which of the following statements about combined (operating & financial) leverag

Question

Which of the following statements about combined (operating & financial) leverage is true?

a.If a firm employs both operating and financial leverage, any percent change in sales will produce a larger percent change in earnings per share.
b.A firm that is in a capital-intensive industry should use a higher level of financial leverage than a firm that employs low levels of operating leverage.
c.Usage of both operating and financial leverage reduces a firm's risk.
d.High operating leverage and high financial leverage offset one another, meaning that if sales increase by 10%, then EPS will also increase by 10%.

Explanation / Answer

B. A firm that is in a capital-intensive industry should use a higher level of financial leverage than a firm that employs low levels of operating leverage

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