When a firm operates exactly at its operating break-even point, its degree of operating leverage is:

Correct answer: C) Undefined (infinitely large), because EBIT is zero

Explanation

DOL = contribution / EBIT. At the operating break-even point, contribution exactly equals fixed costs, so EBIT is zero and DOL cannot be defined. It tends to infinity as sales approach break-even. Operating risk is therefore highest near the break-even level.