Other things held constant,a decline in sales accompanied by an increase in financial leverage must result in a lower profit margin.

Question

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PM = NI / Sales.A decline in sales would,other things held constant,increase the PM.An increase in financial leverage would lead to higher interest charges,which would decrease net income,which would decrease the PM.So,the net effect could be an increase or a decrease in the PM,or no change.

Other Things Held Constant,a Decline in Sales Accompanied by an Increase