Which of the following statements is CORRECT?
A) In general,a firm with low operating leverage also has a small proportion of its total costs in the form of fixed costs.
B) There is no reason to think that changes in the personal tax rate would affect firms' capital structure decisions.
C) A firm with a relatively high business risk is more likely to increase its use of financial leverage than a firm with low business risk,assuming all else equal.
D) If a firm's after-tax cost of equity exceeds its after-tax cost of debt,it can always reduce its WACC by increasing its use of debt.
E) Suppose a firm has less than its optimal amount of debt.Increasing its use of debt to the point where it is at its optimal capital structure will decrease the costs of both debt and equity.

Question

Quizplus · Accepted Answer

A firm with low operating leverage has a smaller proportion of fixed costs in its total cost structure, which means its earnings are less sensitive to changes in sales volume.

Which of the Following Statements Is CORRECT