The presence of fixed operating costs is known as _____.
A)financial leverage
B)operating leverage
C)beta risk
D)market risk
E)firm-specific risk

Question

The presence of fixed operating costs is known as _____. 
A)financial leverage
B)operating leverage
C)beta risk
D)market risk
E)firm-specific risk

Quizplus · Accepted Answer

The presence of fixed operating costs is known as operating leverage. Operating leverage measures the degree to which a company's operating income changes in response to a change in revenue. Companies with high fixed costs have higher operating leverage, meaning a small increase in revenue can lead to a larger increase in operating income. On the other hand, a small decrease in revenue can lead to a larger decrease in operating income.

The Presence of Fixed Operating Costs Is Known as _____