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Given the following information, which of the following statements is most FALSE? Historical Yr Projected Yr Sales 185,000 220,000 EBIT 116,000 NI 60,000 140,000 75,190 O a. The degree of total leverage is 1.4153. O b. The degree of operating leverage is 1.0936. The degree of financial la 5004

Given the following information, which of the following statements is most FALSE? Historical Yr Projected Yr Sales 185,000 220,000 EBIT 116,000 NI 60,000 140,000 75,190 O a. The degree of total leverage is 1.4153. O b. The degree of operating leverage is 1.0936. The degree of financial la 5004

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Given the following information, which of the following statements is most FALSE? Historical Yr Projected Yr Sales 185,000 220,000 EBIT 116,000 140,000 NI 60,000 75,190 O a. The degree of total leverage is 1.4153. Ob. The degree of operating leverage is 1.0936. O c. The degree of financial leverage is 1.2236. d. EPS would increase by the same percentage as NI. Oe. The financial leverage was caused by the interest expense not staying proportional to Sales.
Transcribed Image Text:Given the following information, which of the following statements is most FALSE? Historical Yr Projected Yr Sales 185,000 220,000 EBIT 116,000 140,000 NI 60,000 75,190 O a. The degree of total leverage is 1.4153. Ob. The degree of operating leverage is 1.0936. O c. The degree of financial leverage is 1.2236. d. EPS would increase by the same percentage as NI. Oe. The financial leverage was caused by the interest expense not staying proportional to Sales.
Expert Solution
Step 1: Analysis

First we need to calculate leverage to solved this problem.

Operating leverage =%Change in EBIT/ %Change in sales

Financial Leverage =%Change in net income/%Change in EBIT

Total leverage =Operating leverage*Financial Leverage

                          =%Change in net income/%Change in sales

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