If a firm has no operating leverage and no financial leverage,then a 10% increase in sales will have what effect on EPS?
A) EPS will remain the same.
B) EPS will increase by 10%.
C) EPS will decrease by 10%.
D) EPS will increase by less than 10%.

Question

Quizplus · Accepted Answer

If the firm has no operating leverage and no financial leverage, then a 10% increase in sales will result in a 10% increase in revenue. Since there is no fixed cost to cover, the entire increase in revenue flows down to the bottom line, resulting in a 10% increase in EPS. Hence, the correct choice is (B) EPS will increase by 10%.

If a Firm Has No Operating Leverage and No Financial