Question 1
The degree of financial leverage is concerned with the relation between:
A. changes in volume and changes in EPS.
B. changes in volume and changes in EBIT.
C. changes in EBIT and changes in EPS.
D. changes in EBIT and changes in operating income.

Question 2
When a firm employs no debt:
A. it has a financial leverage of one.
B. it has a financial leverage of zero.
C. its operating leverage is equal to its financial leverage.
D. it will not be profitable.

Question 3
Combined leverage is concerned with the relationship between:
A. changes in EBIT and changes in EPS.
B. changes in volume and changes in EPS.
C. changes in volume and changes in EBIT.
D. changes in EBIT and changes in net income.

Question 4
If the business cycle were just beginning its upswing, which firm would you anticipate would be likely to show the best growth in EPS over the next year? Firm A has high combined leverage, and Firm B has low combined leverage.
A. Firm A
B. Firm B
C. Indifferent between the two
D. It depends on how much financial leverage each firm has