Because the degree of total leverage is multiplicative and not additive, when a firm has very high operating leverage it can moderate its total risk by
A) increasing sales.
B) using more financial leverage.
C) increasing EBIT.
D) using a lower level of financial leverage.

Question

Quizplus · Accepted Answer

Using a lower level of financial leverage can help moderate total risk because it reduces the impact of financial risk, balancing the high operating leverage.

Because the Degree of Total Leverage Is Multiplicative and Not