Question: 1. Define the term financial leverage. Does a firm use financial leverage if preferred stock is present in the capital structure? Why? 2. Define the

1. Define the term financial leverage. Does a firm use financial leverage if preferred stock is present in the capital structure? Why?

2. Define the term operating leverage.

3. Choose a number between 1 to 10 for the Degree of operating leverage, DOL, and Degree of financial leverage, DFL. For this problem we will use the number 10 for the DOL and the number 7 for the DFL.

Then assume a number between 1 % to 5 % for the sales growth forecast for next year. The percentage that we will use for the sales growth forecast is 3%. What will happen to next years EPS growth?

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