Unformatted text preview: pital Structure 521 Substituting the values calculated for DOL and DFL, shown on the right-hand
side of Table 12.7, into Equation 12.10 yields
DTL 1.2 5.0 6.0 The resulting degree of total leverage is the same value that we calculated directly
in the preceding examples. Review Questions
12–1 What is meant by the term leverage? How are operating leverage, financial
leverage, and total leverage related to the income statement?
12–2 What is the operating breakeven point? How do changes in fixed operating costs, the sale price per unit, and the variable operating cost per unit
12–3 What is operating leverage? What causes it? How is the degree of operating leverage (DOL) measured?
12–4 What is financial leverage? What causes it? How is the degree of financial
leverage (DFL) measured?
12–5 What is the general relationship among operating leverage, financial leverage, and the total leverage of the firm? Do these types of leverage complement each other? Why or why not? LG3 LG4 12.2 The Firm’s Capital Structure
Capital structure is one of the most complex ar...
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