The "Degree of Leverage" Concept Is Designed to Show How

question 9

Multiple Choice

The "degree of leverage" concept is designed to show how changes in sales will affect EBIT and EPS.If a 10 percent increase in sales causes EPS to increase from $1.00 to $1.50, and if the firm uses no debt, then what is its degree of operating leverage?

• A)3.6
• B)4.2
• C)4.7
• D)5.0
• E)5.5

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Definitions:

Warehouse

A large building where raw materials or manufactured goods may be stored before their distribution for sale.

Supplier Processes

The procedures and activities undertaken by suppliers to deliver products or services to their customers, including production, quality control, and distribution.

Cost Reduction

The process of cutting expenses to improve profitability without compromising the quality of products or services.

Effectiveness

The ability of an entity or process to achieve its goals or intended results with a minimal amount of waste, expense, or unnecessary effort.