Question 1: The degree of operating leverage is computed as:
A. percent change in operating profit divided by percent change in net income.
B. percent change in volume divided by percent change in operating profit.
C. percent change in EPS divided by percent change in operating income.
D. percent change in operating income divided by percent change in volume.
Question 2: Financial leverage deals with:
A. the relationship of fixed and variable costs.
B. the relationship of debt and equity in the capital structure.
C. the entire income statement.
D. the entire balance sheet.
Question 3: A conservative financing plan involves:
A. heavy reliance on debt.
B. heavy reliance on equity.
C. high degree of financial leverage.
D. high degree of combined leverage.
Question 4: If EBIT equals $160,000 and interest equals $30,000, what is the degree of financial leverage?
A. 5.33x
B. 1.23x
C. 0.8125x
D. 4.33x