Combined Leverage equals 1 only when:
ANo fixed costs and no interest
BSales are equal to variable cost
CEBIT is zero
DInterest is greater than EBIT
Answer & Solution
Correct answer: A. No fixed costs and no interest
1. DCL = 1 only if DOL = 1 AND DFL = 1.
2. DOL = 1 ⇒ no fixed cost; DFL = 1 ⇒ no interest/pref dividend.
3. Hence "no fixed costs and no interest" is correct.
_Source: ICAI BoS CA Inter Paper 6A, Ch 6 "Financing Decisions — Leverages", §5_
Related questions
A firm has high Operating Leverage but Low Financial Leverage. This signals:Combined Leverage of 2.5 and 4% increase in sales will change EPS by approximately:Sales ₹20 lakh; VC ₹12 lakh; Fixed Cost ₹4 lakh; Interest ₹2 lakh. DCL is:A company has DOL = 2 and DFL = 1.5. Combined Leverage is:Combined (Total) Leverage measures the relationship between: