Multiple Choice Questions on Operating leverage is 2 and financial leverage is 1 5 If sales increase by 5 earnings before ta........... for Punjab Government (Allied) Exams Preparation

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Multiple Choice Questions

Operating leverage is 2 and financial leverage is 1 5 If sales increase by 5 earnings before ta...........

Finance( Revenue Account ) Leverage
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    Operating leverage is 2 and financial leverage is 1.5. If sales increase by 5%, earnings before tax will rise by:

     

    15% 

     

    Correct Answer

    7.5%

     

    Incorrect Answer

    10%

     

    Incorrect Answer

    None of these

     

    Incorrect Answer
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    Explanation:

    Combined leverage = Operating leverage x Financial leverage = 2 x 1.5 = 3 times

    Combined Leverage = Change in EPS/Change in Sales  = 3 x 5% = 15% 

    By: Vikas Goyal
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