CFA Practice Question

There are 120 practice questions for this study session.

CFA Practice Question

The greater the percentage of assets financed by debt, the more sensitive EPS is to any change in ______.

A. variable financing receipts
B. operating leverage
C. sales
Correct Answer: C

Financial leverage increases the sensitivity of EPS to changes in EBIT and sales.

User Contributed Comments 4

User Comment
setmefree TDL (total degree of leverage) = DOL*DFL(financial leverage), TDL measures sensitivity of changes in EPS in response to changes in sales; assume a constant degree of leverage, higher DFL indicates higher TDL
Khadria DTL = DOL * DFL = (Delta EBIT / Delta Sales) * (Delta EPS / Delta EBIT) = Delta EPS / Delta Sales
kodali Doesn't real costs affect EBIT
myron yes real costs affect EBIT but it has nothing to do with financing which this question asks.
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