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Question
The degree of financial leverage for ABC Inc. is 2.5, and the degree of financial leverage for XYZ Corporation is 1.5. According to this information, which firm is considered to have greater financial risk?
a. ABC Inc.
b. XYZ Corporation.
c. The degree of financial leverage is not a measure of financial risk, so it is not possible to tell which firm has the greater financial risk given the above information.
d. To determine which firm has the greater financial risk, we need to know the operating income (NOI or EBIT) of each firm. XYZ Corporation would have less financial risk if its operating income is at least twice that of ABC Inc.
e. None of the above is a correct answer.
Answer
This answer is hidden. It contains 1 characters.
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