Suppose ITC's degree of combined leverage (DCL) is 3.00 at a sales volume of $9 million. Determine ITC's percentage change in earnings per share (EPS) if forecasted sales increase by 20% to $10,800,000.
A) 60%
B) 50%
C) 32%
D) 30%

Question

Quizplus · Accepted Answer

The degree of combined leverage (DCL) measures the sensitivity of earnings per share (EPS) to a change in sales. If the DCL is 3.00, a 1% change in sales leads to a 3% change in EPS. Therefore, a 20% increase in sales would lead to a 60% increase in EPS (20% * 3 = 60%).

Suppose ITC's Degree of Combined Leverage (DCL) Is 3