If a firm's fixed costs rise relative to variable costs, and .
A) operating leverage, risk increase
B) operating leverage, financial leverage increase
C) financial leverage, risk increase
D) operating leverage increases, financial risk decreases

Question

If a firm's fixed costs rise relative to variable costs,​ and .
A) ​operating leverage, risk increase
B) operating leverage, financial leverage increase​
C) financial leverage, risk increase​
D) operating leverage increases, financial risk decreases​

Quizplus · Accepted Answer

If a firm's fixed costs rise relative to variable costs, the firm's operating leverage increases, which means that its risk also increases. This is because the firm's overall cost structure becomes more sensitive to changes in sales volume.

If a Firm's Fixed Costs Rise Relative to Variable Costs,​

If a Firm's Fixed Costs Rise Relative to Variable Costs,