Other things held constant,the higher the degree of total leverage exhibited by a firm,the greater the risk associated with that firm.

Question

Quizplus · Accepted Answer

Total leverage refers to the combination of operating leverage and financial leverage. A high degree of total leverage means that the firm has a high proportion of fixed costs (operating leverage) and a high level of debt (financial leverage) in its capital structure. This increases the firm's risk as it becomes more vulnerable to fluctuations in sales and interest rates. Therefore, the statement is true.

Other Things Held Constant,the Higher the Degree of Total Leverage