PBT of a firm has increased by 40 percent as a result of 10 percent increase in sales, operating…
The degree of combined leverage is the percentage change in PBT divided by the percentage change in sales, i.e. 40% / 10% = 4. Since combined leverage equals operating…
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PBT of a firm has increased by 40 percent as a result of 10 percent increase in sales, operating leverage of the firm is 2. What will be financial leverage of the firm ?
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Correct answer C
The degree of combined leverage is the percentage change in PBT divided by the percentage change in sales, i.e. 40% / 10% = 4. Since combined leverage equals operating leverage multiplied by financial leverage, 4 = 2 × financial leverage, so financial leverage is 2.
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UGC NET Commerce