The degree of financial leverage has which of the following characteristics?
A) The closer the firm is operating to its financial breakeven point,the smaller the DFL.
B) Other things held constant,if a firm has fixed financial costs,such as interest,a change in EBIT will result in an equivalent change in EPS.
C) For a particular firm,the DFL is not a fixed number⎯its value depends on the level of operations and the fixed financial costs associated with those operations.
D) The DFL relates the change in EBIT to the change in sales.
E) If a firm has common stock,it is impossible for its DFL to equal 1.0.

Question

Quizplus · Accepted Answer

The degree of financial leverage (DFL) is not a fixed number; it varies depending on the level of operations and the fixed financial costs. It measures how sensitive the firm's earnings per share (EPS) are to changes in its operating income (EBIT).

The Degree of Financial Leverage Has Which of the Following