ATEch has fixed costs of $8 million and profits of $5 million. Its competitor ZTech is roughly the same size and this year earned the same profits, $5 million. But it operates with fixed costs of $7 million and lower variable costs. what is the degree of operating leverage for each company? which firm would you expect to have profits that are more sensitive to the state of the economy? which firm would you expect to have the higher stock market beta?

ATEch has fixed costs of $8 million and profits of $5 million. Its competitor ZTech is roughly the same size and this year earned the same profits, $5 million. But it operates with fixed costs of $7 million and lower variable costs. what is the degree of operating leverage for each company? which firm would you expect to have profits that are more sensitive to the state of the economy? which firm would you expect to have the higher stock market beta?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter16: Capital Structure Decisions

Section: Chapter Questions

Problem 2MC

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