If a firm has the lowest possible degree of operating leverage and the lowest possible degree of financial leverage, then
A) DOL equals 1, and DFL equals 0.
B) DOL equals 0, and DFL equals 1.
C) DOL equals 1, and DFL equals 1.
D) none of these

Question

Quizplus · Accepted Answer

The degree of operating leverage (DOL) equals 1 when there are no fixed operating costs, and the degree of financial leverage (DFL) equals 1 when there is no debt or financial obligations.

If a Firm Has the Lowest Possible Degree of Operating