Assume the following: Degree of Operating Leverage (DOL) = 2.4 Degee of Financia

Question

Assume the following:

Degree of Operating Leverage (DOL) = 2.4

Degee of Financial Leverage (DFL) = 1.25

Degree of Total Leverage (DTL) = 3

Everything else remaining constant, assume the company decides to immediately repay 50% of a bank loan prior to its maturity. How would this affect its DOL. DFL adn DTL? Please explain why.

The DOL would be expected to: (increase, decrease, or remain constant) ?

The DFL would be expected to: (increase, decrease, or remain constant) ?

The DTL would be expected to: (increase, decrease, or remaint constant) ?

Explanation / Answer

DOL = remain same

DFL = decrease

DTL = decrease

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