CFA Practice Question

There are 120 practice questions for this study session.

CFA Practice Question

With financial leverage, a drop in sales means that net income and EPS will ______ than they would if no debt were being used.

A. drop more
B. drop less
C. increase more
Correct Answer: A

The use of financial leverage increases the sensitivity of EPS to changes in sales.

User Contributed Comments 2

User Comment
kalps Financial leverage increases sensitivity of EPS to changes in sales
setmefree second degree of leverage- financial leverage-->the greater, the more sensitive EPS to changes in sales/EBIT.
first degree of leverage--operating leverage= %of fixed assets --> the greater, the more sensitive EBIT to changes in sales
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