Final answer:
False, The degree of combined leverage is not the sum but the product of the degree of operating leverage and the degree of financial leverage.
Step-by-step explanation:
The statement that the degree of combined leverage is the sum of the degree of operating leverage and the degree of financial leverage is false. The degree of combined leverage is actually calculated by multiplying the degree of operating leverage (DOL) by the degree of financial leverage (DFL). The DOL measures how a company's operating income changes in response to changes in sales, whereas the DFL measures the change in a company's net income in response to changes in operating income. Multiplying these two leverages gives the combined leverage, which indicates the sensitivity of the company's net income to changes in sales.