The degree of financial leverage for ABC Inc. is 2.5, and the degree of financial leverage for XYZ Corporation is 1.5. According to this information, which firm is considered to have greater financial risk?
a. ABC Inc.
b. XYZ Corporation.
c. The degree of financial leverage is not a measure of financial risk, so it is not possible to tell which firm has the greater financial risk given the above information.
d. To determine which firm has the greater financial risk, we need to know the operating income (NOI or EBIT) of each firm. XYZ Corporation would have less financial risk if its operating income is at least twice that of ABC Inc.
e. None of the above is the correct answer.

a. ABC Inc.

Explanation:

The degree of financial leverage is expressed by the following formula,

=

The ratio represents the relationship between net operating profits and profits after financial fixed costs.

Higher the degree of financial leverage, higher will be the financial risk.

In the given case, ABC Inc.'s degree of financial leverage is higher which suggests that ABC has employed more of debt in it's financial structure owing to which higher fixed cost obligations in the form of interest payments have been created.

Thus, ABC Inc. will have a greater financial risk.

answer: in the short-run firms will respond by raising the price of turkey.

explanation: initially the long-run equilibrium is at a price of $5 per pound of turkey and a quantity of 50 million pounds per year. now, when webmd claims that a protein found in turkey will increase your expected lifespan by 4 years. the consumers demand for turkey will increase at every price shifting the demand curve to the right from d1 to d2. while, there will be no change in the supply curve in the short-run as it is not possible for producers to adjust supply so quickly. as a result the new equilibrium will occur at a higher price and a higher quantity of turkey.

thus, in the short run firms will respond by increasing the price of turkey, selling more quantity at a higher price and earning economic profits.