Ames Drilling Corp

question 57

Multiple Choice

Ames Drilling Corp.reported that its sales and EBIT increased by 10%,but its EPS increased by 30%.The much larger change in earnings per share could be the result of

• A) high operating leverage.
• B) high financial leverage.
• C) a high percentage of credit sale collections from prior years.
• D) high fixed costs of production.

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Definitions:

Sale Price

The amount of money for which a product, asset, or service is sold in the marketplace.

Revaluation Model

An accounting method allowing for the increase or decrease of an asset's value on the balance sheet, based on current fair values.

Fair Value

The price at which an asset could be exchanged or a liability settled between knowledgeable, willing parties in an arm's length transaction.

Gain on Sale

The financial profit gained from selling an asset for more than its book value.