What Does a Degree of Financial Leverage (DFL) of 2

question 38

Multiple Choice

What does a degree of financial leverage (DFL) of 2.0 indicate?

• A)For every 1 percent change in its sales, the firm's EBIT will change by 2 percent.
• B)For every 1 percent change in its EPS, the firm's sales will change by 0.5 percent.
• C)For every 1 percent change in its EBIT, the firm's EPS will change by 2 percent.
• D)For every 1 percent change in its EPS, the firm's EBIT will change by 0.5 percent.
• E)For every 1 percent change in its EBIT, the firm's sales will change by 2 percent.

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Definitions:

Z-score

A statistical measure representing the number of standard deviations a data point is from the mean of its distribution.

Symmetrical Area

An area in a statistical distribution where two portions on either side of the center are mirror images of each other.

Discrete Probability Distributions

Probability distributions that deal with discrete random variables, quantifying the probabilities of different outcomes.

Continuous Probability Density Functions

Mathematical functions that describe the likelihood of all possible values of a continuous random variable.