Question

    A company operates with both high operating leverage and

    high financiel leverage. Which of the following options most accurately describes the impact on its overall risk-return profile?
    A High business risk but low financial risk, resulting in limited sensitivity of returns to sales fluctuations Correct Answer Incorrect Answer
    B High business and financial risk, causing substantial fluctuations in earnings per share (EPS) with changes in sales Correct Answer Incorrect Answer
    C Law business risk and high financial risk leading to increased operating income but reduced sensitivity to revenue changes Correct Answer Incorrect Answer
    D Low business and financial risk, leading to stable profits and minimal earnings volatility Correct Answer Incorrect Answer

    Solution

    The correct answer is B

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