asked 144k views
1 vote
If a firm has a DFL of 2.0, EPS will change 2% for every 1% change in volume. True False

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User ICyborg
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8.6k points

1 Answer

4 votes

Final answer:

The statement is false. A DFL of 2.0 indicates a 2% change in EPS for every 1% change in operating income, not sales volume. DFL measures the change in EPS due to operating income fluctuations.

Step-by-step explanation:

The statement "If a firm has a DFL of 2.0, EPS will change 2% for every 1% change in volume" is False. DFL, or degree of financial leverage, measures the sensitivity of a company's earnings per share (EPS) to changes in its operating income. A DFL of 2.0 means that for every 1% change in operating income, there will be a corresponding 2% change in EPS, not a 2% change for every 1% change in volume. Volume changes affect sales and potentially operating income, but the relationship between volume changes and EPS is not directly measured by DFL alone.

answered
User Ondrej Prochazka
by
8.4k points
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