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      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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