Expert Analysts Resources (EAR) Has Provided You with the Following

Expert Analysts Resources (EAR) has provided you with the following information about three companies you are currently evaluating:
Company Degree of Operating Leverage (DOL) Degree of Financial Leverage (DFL)
Acme 1.5× 6.0×
Apex 3.0× 4.0×
Alps 5.0× 2.0×
_____ would be considered riskiest because _____.

A) Acme; its DFL equals 6.0, which is the highest leverage associated with any of the three firms
B) Acme; its degree of total leverage (DTL) is almost equal to 10×
C) Apex; it has the highest degree of total leverage (DTL) among the three firms
D) Alps; it has the highest DOL among the three firms
E) Acme; it has the lowest DOL among the three firms

Correct Answer:

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