How many statements below about operating leverage are correct? 1. Operating leverage measures the sensitivity of a firm's operating income to changes in the firm's level of sales. 2. Automated operations results to greater operating leverage for the firm than mechanical operations. 3. An operatțing leverage of 5 means that a firm's operating income will increase by PO.5 for every P1 increase in sales. 4. Operating leverage will decrease as the firm's margin of safety increases. 5. The higher the firm's operating leverage, the higher is its income potential but at the same time, the higher the risk of incurring loss.
How many statements below about operating leverage are correct? 1. Operating leverage measures the sensitivity of a firm's operating income to changes in the firm's level of sales. 2. Automated operations results to greater operating leverage for the firm than mechanical operations. 3. An operatțing leverage of 5 means that a firm's operating income will increase by PO.5 for every P1 increase in sales. 4. Operating leverage will decrease as the firm's margin of safety increases. 5. The higher the firm's operating leverage, the higher is its income potential but at the same time, the higher the risk of incurring loss.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:How many statements below about operating leverage are correct?
1. Operating leverage measures the sensitivity of a firm's operating income to changes in the
firm's level of sales.
2. Automated operations results to greater operating leverage for the firm than mechanical
operations.
3. An operațing leverage of 5 means that a firm's operating income will increase by P0.5 for
every P1 increase in sales.
4. Operating leverage will decrease as the firm's margin of safety increases.
5. The higher the firm's operating leverage, the higher is its income potential but at the same
time, the higher the risk of incurring loss.
1
2
4
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