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Through the effects of financial leverage, when EBIT increases, O earnings per share will decrease O earnings per share will
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Answer #1

Answer :- Option B- Earning per share will increase

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Explanation :-

Financial Leverage = Earning before interest and taxes(EBIT) / Earning before taxes(EBT)

it indicates the amount of debt a firm is using to finance it's asset, the more the debt , there is a high interest and and higher financial levarage ratio bacause of decrease in EBT

if EBIT and incraes ,then the EBT and net income also incrase and so the Earning per share also increase

Earning per share = Income available to shareholders / number os shares outstaning

if the EBIT increase then the Earning per share also increase, beacuse if numerator incrase , the ratio also increase

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Option A is wrong beacuse if the numerator in the earning per share the ratio doesn't increase

option C & D is also wrong, because isn't related to financial leveage, it relate to operating leverage

Operating leverage = Contribution / EBIT

operating leverage is the concept of using fixed cost to it's maximum potential level to bring down the total cost per unit of a product, if EBIT inrease or decreas, it doesn't affect the operating fixed cost

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