Which of the following statements is correct?
A)In general, a firm with low operating leverage also has a small proportion of its total costs in the form of fixed costs.
B)There is no reason to think that changes in the personal tax rate would affect firms' capital structure decisions.
C)A firm with high business risk is more likely to increase its use of financial leverage than a firm with low business risk, assuming all else is equal.
D)If a firm's after-tax cost of equity exceeds its after-tax cost of debt, it can always reduce its WACC by increasing its use of debt.

Question

Quizplus · Accepted Answer

A) A firm with low operating leverage has a smaller proportion of fixed costs in its total cost structure, meaning its earnings are less sensitive to changes in sales volume.

Which of the Following Statements Is Correct