The degree of operating leverage has which of the following characteristics?
A) The closer the firm is operating to breakeven quantity,the smaller the DOL.
B) A change in quantity demanded will produce the same percentage change in EBIT as an identical change in price per unit of output,other things held constant.
C) The DOL is not a fixed number for a given firm,but will depend upon the time zero values of the economic variables Q (Quantity),P (Price),and V (Volume).
D) The DOL relates the change in net income to the change in net operating income.
E) If the firm has no debt,the DOL will equal 1.

Question

Quizplus · Accepted Answer

EThe Degree of Operating Leverage (DOL) depends on the firm's cost structure and sales volume, not fixed for a given firm as it varies with changes in quantity, price, and volume. If a firm has no debt, its financial leverage is zero, but its operating leverage can still exist due to fixed operational costs, making E incorrect because DOL can be different from 1 even without debt, as it measures the sensitivity of operating income to changes in sales volume, not the presence of debt.

The Degree of Operating Leverage Has Which of the Following