The Gearing Company with a degree of operating leverage of 1.6 and a degree of total leverage of 5 has a degree of financial leverage closest to:
A) 0.320
B) 3.125
C) 3.400

Question

Quizplus · Accepted Answer

The degree of financial leverage (DFL) can be calculated by dividing the degree of total leverage (DTL) by the degree of operating leverage (DOL). Thus, DFL = DTL / DOL = 5 / 1.6 = 3.125.

The Gearing Company with a Degree of Operating Leverage of 1.6