Please match the correct terms to the correct definition and in part B please correct the bold letters if they are wrong

Select the correct term for each of the following descriptions. These are not necessarily complete definitions, but there is only one possible answer for each term.

Descriptions	Terms
The level and nature of risk attributable to a firms activities and operations, and ignoring the risks associated with the firms capital structure.	Asymmetric information
The situation in which outsiders, such as external shareholders, credits, suppliers, and customers have less and inferior information about a firms past, current, and future conditions and prospects, compared to the firms managers.	Business risk
The extent to which a firms cost structure contains a large proportion of fixed costs, which raises its level of business risk if the firms sales decline.	Capital structure
This practice of employing a large proportion of fixed-cost sources of financing, such as debt securities and preferred stock, exposes a firms stockholders to more business risk.	EPS indifference point
The ability of a firm to borrow money at a reasonable cost when good investment opportunities arise because it currently less debt than that suggested by its optimal capital structure.	Financial leverage
An action taken by a firms management that provides clues to investors about how management views the firms prospects.	Financial risk
The risk that is borne solely by the firms shareholders, and results from a firms decision to finance its assets using fixed-cost sources of capital, including debt securities and preferred stock.	Operating leverage
The level of sales at which a firms earnings per share (EPS) are the same, regardless of which of two alternative capital structures are compared.	Optimal capital structure
The mix of debt, preferred stock, and common stock that maximizes the price of the firms common stock.	Reserve borrowing capacity
The mix of debt, preferred stock, and common stock that finances a firms assets.	Signal

In making capital structure decisions, managers must manage the firms level of operating leverage and financial leverage, and the firms exposure to business and financial risks. This requires knowledge of a firms degree of operating leverage (DOL), financial leverage (DFL), and total leverage (DTL).

Complete the following table by identifying the correct formula and completing the interpretative statement.

Formula	Interpretation
Degree of operating leverage (DOL)
EBIT / Gross profit	An index for a specific level of sales that measures the effect of a change in sales (S) on the firms operating income (EBIT). Alternatively, it is an indicator of the riskiness (variability) of a firms EBIT to the use of fixed costs (F) in the firms cost structure.
Degree of financial leverage (DFL)
% EPS / % EBIT	An index for a specific range of sales that measures the effect of a change in EBIT on a firms earnings per share (EPS). At a constant level of sales, the DFL value will vary with a change in the amount of interest expense (I) incurred. This implies that the DFL is an indicator of a firms financial risk.
Degree of total leverage (DTL)
% EBIT / % Sales	An index of the firms total risk resulting from its use of operating and financial leverage. Stated differently, it is an indicator of the consequences for the firms EPS for its use of fixed operating and financing costs