CFA® Level 1 Exam: Correct Statements

CFA® Level 1 Exam: Most Correct Statement

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Question

Which of the following statements is most correct?

Answers

A. None of these answers are correct.

B. An increase in fixed costs, (holding sales and variable costs constant) will reduce the company's degree of operating leverage.

C. If the company has no debt outstanding, then its degree of total leverage equals its degree of operating leverage.

D. All of these answers are correct.

E. An increase in interest expense will reduce the company's degree of financial leverage.

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Explanations

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A. B. C. D. E.

The degree of financial leverage is the percentage change in EPS that results form a given percentage change in earnings before interest and taxes. If a firm has no debt outstanding the degree of financial leverage would be 1.0.

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