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Eduncle posted an MCQ
October 13, 2019 • 21:00 pm 0 points
  • UGC NET
  • Commerce

Operating Leverage and Financial Leverage of a firm are 3 and 2, respectively. If sales increase by 6%, then earnings before tax will rise by :

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  • Roopali pansari

    ohk so EPS is treated as EBT because of no tax n preferred dividend

  • Roopali pansari

    i couldn't find this true.... please explain this question step by step so that i can understand this

    cropped522056931849843761.jpg
    eduncle-logo-app

    i hope u will understand it

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    Eduncle Best Answer

    Combined Leverage = Operating leverage × Financial leverage 
              3 × 2 = 6 
    If sales increase by 6 % then EBIT (Earning before Interest and tax) will be  
    Degree of Combined leverage = C/EBIT × EBIT/EBT 
    Thus EBT = 6 × 6 = 36% 

    eduncle-logo-app

    i can't understand ..... how 6×6 becomes EBT..... as per ur solutions degree of combined leverage = c/EBT.... if we take c= 6 then solution will be....... 6=6/EBT THAT WILL BE 1 ..... so plz provide me a photo of ur solution step by step....

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