Answer the following statements true (T) or false (F)
1. Comparison of the degree of operating leverage of two firms is valid only when the base level of sales used for each firm is the same.
2. The degree of operating leverage depends on the base level of sales used as a point of reference. The closer the base sales level used is to the operating breakeven point, the greater the operating leverage.
3. Operating leverage results from the existence of operating costs in a firm's income stream.
4. Operating leverage may be defined as the potential use of fixed operating costs to magnify the effects of changes in sales on a firm's earnings before interest and taxes (EBIT).
5. Operating leverage is present when a firm has fixed operating costs.
1. TRUE
2. TRUE
3. FALSE
4. TRUE
5. TRUE
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Indicate whether the statement is true or false
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