The Gearing Company with a degree of operating leverage of 1.5 and a degree of total leverage of 4.2 has a degree of financial leverage closest to:
A) 0.4
B) 2.7.
C) 2.8.

Question

Quizplus · Accepted Answer

The degree of total leverage (DTL) is the product of the degree of operating leverage (DOL) and the degree of financial leverage (DFL). Given DTL = 4.2 and DOL = 1.5, we can find DFL by dividing DTL by DOL: DFL = 4.2 / 1.5 = 2.8.

The Gearing Company with a Degree of Operating Leverage of 1.5