ABC Corporation has a combined leverage ratio of 2.5. If the company's financial leverage ratio is 1.8, what is the company's operating leverage ratio?a.3.3b.0.7c.1.4d.1.0
Question
ABC Corporation has a combined leverage ratio of 2.5. If the company's financial leverage ratio is 1.8, what is the company's operating leverage ratio?a.3.3b.0.7c.1.4d.1.0
Solution
The combined leverage ratio is calculated by multiplying the operating leverage ratio and the financial leverage ratio.
So, if ABC Corporation's combined leverage ratio is 2.5 and its financial leverage ratio is 1.8, we can find the operating leverage ratio by dividing the combined leverage ratio by the financial leverage ratio.
Operating Leverage Ratio = Combined Leverage Ratio / Financial Leverage Ratio
Operating Leverage Ratio = 2.5 / 1.8
Operating Leverage Ratio = 1.4
So, the answer is c. 1.4.
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