Foundations of Financial Management Study Set 6
Quiz 5: Operating and Financial Leverage
The Degree of Combined Leverage Is the Sum of the Degree
The degree of combined leverage is the sum of the degree of operating leverage and the degree of financial leverage.
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Firms with cyclical sales should employ a high degree of leverage.
If economic conditions were expected to be favourable, an investor would likely prefer a firm with a low degree of leverage.
The contribution margin is equal to price per unit minus total costs per unit.
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