Corporate Finance【Reading 38】Sample
All else equal, a firm's business risk is higher when: A)
| the firm has low operating leverage. |
| B)
| variable costs are the highest portion of its expense. |
| C)
| fixed costs are the highest portion of its expense. |
|
The higher the percentage of a firm's costs that are fixed, the higher the operating leverage, and the greater the firm's business risk and the more susceptible it is to business cycle fluctuations. |