[amp_mcq option1=”2.5″ option2=”3″ option3=”2″ option4=”8″ correct=”option1″]<\/p>\n
The correct answer is A. 2.5.<\/p>\n
Combined leverage is a measure of how sensitive a company’s earnings per share (EPS) are to changes in sales. It is calculated by multiplying the firm’s operating leverage and financial leverage.<\/p>\n
Operating leverage is a measure of how sensitive a company’s operating income is to changes in sales. It is calculated by dividing the firm’s contribution margin by its operating income.<\/p>\n
Financial leverage is a measure of how sensitive a company’s earnings per share are to changes in its operating income. It is calculated by dividing the firm’s earnings before interest and taxes (EBIT) by its earnings per share.<\/p>\n
In this case, the firm’s contribution margin is Rs. 25 lacs (40 lacs – 10 lacs – 15 lacs), its operating income is Rs. 10 lacs (40 lacs – 10 lacs – 15 lacs – 5 lacs), and its earnings per share is Rs. 2.5 (10 lacs \/ 4 lacs).<\/p>\n
Therefore, the firm’s combined leverage is 2.5 (25 lacs \/ 10 lacs).<\/p>\n
Option B is incorrect because it is the firm’s operating leverage.<\/p>\n
Option C is incorrect because it is the firm’s financial leverage.<\/p>\n
Option D is incorrect because it is the firm’s degree of operating leverage.<\/p>\n","protected":false},"excerpt":{"rendered":"
[amp_mcq option1=”2.5″ option2=”3″ option3=”2″ option4=”8″ correct=”option1″]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[85],"tags":[],"class_list":["post-44389","post","type-post","status-publish","format-standard","hentry","category-accounting","no-featured-image-padding"],"yoast_head":"\n