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Calculate a company's total leverage given the following information: Change in sales = 7% Change in earnings = 10% Cannot calculate without net income data 1
Calculate a company's total leverage given the following information:
- Change in sales = 7%
- Change in earnings = 10%
-
Cannot calculate without net income data
-
1.43
-
Cannot calculate without EBIT data
-
0.7
Expert Solution
Ans) 1.43
Degree of total leverage = Degree of operating leverage x degree of financial leverage
= % change in EBIT / % Change in sales x % Change in Earings / % Change in EBIT
= % Change in Earings / % Change in sales
= 10%/7%
= 1.43
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