Asked by Katherine Fortune on Jul 13, 2024
Verified
Which of the following is correct?
A) Capital structure affects both financial leverage and operating leverage.
B) Cost structure affects both financial leverage and operating leverage.
C) Capital structure affects financial leverage and cost structure affects operating leverage.
D) Capital structure affects operating leverage and cost structure affects financial leverage.
E) None of the above is correct.
Capital Structure
The particular combination of debt and equity used by a company to finance its overall operations and growth.
Cost Structure
The mix of fixed and variable cost used by a firm.
Financial Leverage
Utilizing borrowed funds to amplify the prospective gains of an investment.
- Examine the interaction between cost composition, financial structure, and how they influence both financial and operational leverage.
Verified Answer
NA
Nasser AamerJul 17, 2024
Final Answer :
C
Explanation :
Capital structure, which includes debt and equity, influences financial leverage by affecting the proportion of debt financing. Cost structure, involving fixed and variable costs, impacts operating leverage by determining how costs behave with changes in production volume.
Learning Objectives
- Examine the interaction between cost composition, financial structure, and how they influence both financial and operational leverage.