In a highly leveraged company,
A) fixed costs are low and variable costs are high.
B) large changes in sales volume result in small changes in net income.
C) there is a higher possibility of net income or net loss and therefore more risk than a low leveraged firm.
D) a variation in sales leads to only a small variability in net income.

Question

Quizplus · Accepted Answer

A highly leveraged company has a high level of fixed costs relative to variable costs, which means that changes in sales volume can lead to significant changes in net income, increasing the risk of both higher profits and higher losses.

In a Highly Leveraged Company