- CFA Exams
- 2021 CFA Level I Exam
- Study Session 11. Corporate Finance (2)
- Reading 34. Measures of Leverage
- Subject 2. Financial Risk and Financial Leverage
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.
B. drop less
C. increase more
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 |