The following chart shows the similarities between operating leverage and financial leverage:
$\begin{array}{|l|l|l|}
\hline & \text { Operating Leverage } & \text { Financial Leverage } \
\hline \text { Risk Relationship } & \text { Amplifies present } & \text { Creates and amplifies } \
\hline & \text { business risk } & \text { financial risk } \\hline\\hline & \text { Substitutes fixed costs } & \text { Substitutes fixed return } \
\hline \text { Cash outflows } & \text { for variable costs in } & \text { debt for variable return } \
\hline & \text { cost structure } & \text { equity in capital structure }\
\hline
\end{array}$

Question

The following chart shows the similarities between operating leverage and financial leverage:
 $\begin{array}{|l|l|l|}
\hline & \text { Operating Leverage } & \text { Financial Leverage } \
\hline \text { Risk Relationship } & \text { Amplifies present } & \text { Creates and amplifies } \
\hline & \text { business risk } & \text { financial risk } \\hline\\hline & \text { Substitutes fixed costs } & \text { Substitutes fixed return } \
\hline \text { Cash outflows } & \text { for variable costs in } & \text { debt for variable return } \
\hline & \text { cost structure } & \text { equity in capital structure }\
\hline
\end{array}$

Quizplus · Accepted Answer

Operating leverage amplifies present business risk, while financial leverage creates and amplifies financial risk.

The Following Chart Shows the Similarities Between Operating Leverage and Financial