The Degree of Leverage Concept Is Designed to Show How

Multiple Choice

The degree of leverage concept is designed to show how changes in sales affect earnings before interest and taxes (EBIT) and earnings per share (EPS) . If a 10 percent increase in sales causes EPS to increase from $1.00 to $1.50 and if the firm uses no debt, then what is its degree of operating leverage?

A) 3.6
B) 4.2
C) 4.7
D) 5.0
E) 5.5