The degree of operating leverage is computed as
A. percent change in operating profit divided by percent change in net income.
B. percent change in unit volume divided by percent change in operating profit.
C. percent change in EPS divided by percent change in operating income.
D. percent change in operating income divided by percent change in unit volume.
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Firms with a high degree of operating leverage are
A. easily capable of surviving large changes in sales volume.
B. usually trading off lower levels of risk for higher profits
C. significantly affected by changes in interest rates
D. trading off higher fixed costs for lower per-unit variable costs
Financial leverage deals with
A. the relationship of fixed and variable costs.
B. the relationship of debt and equity in the capital structure.
C. the entire income statement.
D. the entire balance sheet.
If EBIT equals $200,000 and interest equals $40,000, what is the degree of financial leverage?
A. 5.33
B. 1.25
C. 0.8125
D. 4.33
The degree of financial leverage is concerned with the relationship between
A. changes in volume and changes in EPS
B. changes in volume and changes in EBIT
C. changes in EBIT and changes in EPS
D. changes in EBIT and changes in operating income.
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