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Basic Question 4 of 5

The greater the percentage of assets financed by debt, the more sensitive EPS is to any change in ______.

A. variable financing receipts
B. operating leverage
C. sales
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User Contributed Comments 4

User Comment
setmefree TDL (total degree of leverage) = DOL*DFL(financial leverage), TDL measures sensitivity of changes in EPS in response to changes in sales; assume a constant degree of leverage, higher DFL indicates higher TDL
Khadria DTL = DOL * DFL = (Delta EBIT / Delta Sales) * (Delta EPS / Delta EBIT) = Delta EPS / Delta Sales
kodali Doesn't real costs affect EBIT
myron yes real costs affect EBIT but it has nothing to do with financing which this question asks.
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Learning Outcome Statements

evaluate a company's capital investments and capital structure

CFA® 2024 Level I Curriculum, Volume 3, Module 5.