A decrease in the level of a firm's interest expense (holding all other factors constant)would:
A)increase operating leverage.
B)decrease operating leverage.
C)decrease financial leverage.
D)have no impact on operating leverage.
E)c and d

Question

Quizplus · Accepted Answer

A decrease in the level of a firm's interest expense decreases financial leverage because it reduces the firm's reliance on debt financing. Operating leverage is unaffected by changes in interest expense, as it relates to the firm's fixed versus variable costs in production, not its financing structure.

A Decrease in the Level of a Firm's Interest Expense