Which of the following statements about combined (operating & financial) leverage is true?
A) Usage of both operating and financial leverage reduces a firm's risk.
B) If a firm employs both operating and financial leverage, any percent change in sales will
produce a larger percent change in earnings per share.
C) 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.
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.
Question 2
A British-made component costs 36 U.K. pounds. A company in the United States needs to buy
these components and the current indirect quote indicates that one dollar will buy .6250 pounds.
Ignoring transactions costs, how much will one component cost in U.S. dollars?
A) 72.00 B) 22.50 C) 45.94 D) 57.60
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