B3: Leverage

Question 1

Fixed Costs amplify what

Answer 1

Risk Assumed and Potential Return

Question 2

What is Operating Leverage

Answer 2

It is when the company uses fixed costs rather than variable costs

Question 3

Capital Intensive industries…

Answer 3

have high operating leverage (airline, manufacturing)

Question 4

Labor Intensive Industries…

Answer 4

have high low operating leverage (accounting firms, no contract, EE at will)

Question 5

When is high operating leverage beneficial

Answer 5

it is beneficial when sales revenues is high

Question 6

What does a high degree of operating leverage indicate

Answer 6

high risk = high return (possibly)

Question 7

What does a low degree of operating leverage indicate

Answer 7

Low risk = low return

Question 8

What is Financial Leverage

Answer 8

It is when a firm uses debt rather than equity to finance the company

Question 9

Highly leveraged companies are at risk of what

Answer 9

bankruptcy if they dont make payments on their debt