Based on the information in Exhibit B, 4G Inc.’s degree of financial leverage (DFL), at unit sales of 1,000,000, is closest to:

Mary Benn, CFA, is a financial analyst for Twin Fields Investments, located in Storrs, Connecticut, U.S.A. She has been asked by her supervisor, Bill Cho, to examine two small Japanese cell phone component manufacturers: 4G, Inc. and Qphone Corp. Cho indicates that his clients are most interested in the use of leverage by 4G and Qphone. Benn states, "I will have to specifically analyze each company's respective business risk, sales risk, operating risk, and financial risk." "Fine, I'll check back with you shortly," Cho, answers.
Benn begins her analysis by examining the sales prospects of the two firms. The results of her sales analysis appear in Exhibit 1. She also expects very little price variability for these cell phones. She next gathers more data on these two companies to assist her analysis of their operating and financial risk.
When Cho inquires as to her progress Benn responds, "I have calculated Qphone's degree of operating leverage (DOL) and degree of financial leverage (DFL) at Qphone's 2009 level of unit sales. I have also calculated Qphone's breakeven level for unit sales. I will have 4G's leverage results shortly."
Cho responds, "Good, I will call a meeting of some potential investors for tomorrow. Please help me explain these concepts to them, and the differences in use of leverage by these two companies. In preparation for the meeting, I have a number of questions":
"You mentioned business risk; what is included in that?"
"How would you classify the risk due to the varying mix of variable and fixed costs?"
"Could you conduct an analysis and tell me how the two companies will fare relative to each other in terms of net income if their unit sales increased by 10 percent above their 2009 unit sales levels?"
"Finally, what would be an accurate verbal description of the degree of total leverage?"
The relevant data for analysis of 4G is contained in Exhibit 2, and Benn's analysis of the Qphone data appears in Exhibit 3:
Exhibit 1. Benn's Unit Sales Estimates for 4G, Inc. and Qphone Corp.
Company 2009 Unit Sales Standard Deviation of Unit Sales 2010 Expected Unit Sales Growth Rate (%)
4G, Inc. 1,000,000 25,000 15
Qphone Corp. 1,500,000 10,000 15
Exhibit 2. Sales, Cost, and Expense Data for 4G, Inc. (At Unit Sales of 1,000,000)
Number of units produced and sold 1,000,000
Sales price per unit ¥108
Variable cost per unit ¥72
Fixed operating cost ¥22,500,000
Fixed financing expense ¥9,000,000
Exhibit 3. Benn's Analysis of Qphone (At Unit Sales of 1,500,000)
Degree of operating leverage 1.40
Degree of financial leverage 1.15
Breakeven quantity (units) 571,429
A. 1.33.
B. 2.67.
C. 3.00.

Ans: C. 3.00.