1. Which of the following is true of financial leverage?
a. It affects the sensitivity of net income to changes in sales.
b. a and b
c. It is increased by an increase in operating leverage.
d. It arises from the use of debt financing.
2. Financial leverage is a direct function of the ratio of:
a. EBIT to sales.
b. net income to sales.
c. interest expense to EBIT.
d. net income to the number of shares of common stock.