[barelystayingsane]

Becker provided a couple formulas in its questions on leverage in BEC:

Operating leverage = Q(S – VC)/(Q(S – VC) -FC)

Financial Leverage = EBIT/(EBIT – I – [P/(1-t)])

Total Leverage = Q(S – VC)/(Q(S – VC) – FC – I – [P/(1-t)])

Are these formulas that I should memorize for BEC? Becker didn’t include them in the book. They just provided them for us within the question.

Thanks!

[Amay]

Becker did provide the formulas. The formula for DOL = % Change in EBIT / % Change in Sales

DFL = % Change in EPS / % Change in EBIT

Total Operating Leverage TOL = % Change in EPS / % Change in Sales OR simply DOL X DFL….looking at both formulas EBIT cancels out

BEC: 73, 81
AUD: 85
FAR: 71, 77
REG: 74, 75...finally DONE! 😀

*This is my 2nd attempt at the CPA exam. For all of you who have failed this exam many times, given up on it, or taken a break like me, remember that it is still possible to finish what you started...failure is the opportunity to begin again more intelligently 🙂

[barelystayingsane]

Right, I memorized the formulas that Becker provided in the book, but should I also memorize the ones I have up above?

[Amay]

Honestly I don't remember seeing those. I would imagine they are not important…

BEC: 73, 81
AUD: 85
FAR: 71, 77
REG: 74, 75...finally DONE! 😀

*This is my 2nd attempt at the CPA exam. For all of you who have failed this exam many times, given up on it, or taken a break like me, remember that it is still possible to finish what you started...failure is the opportunity to begin again more intelligently 🙂

[barelystayingsane]

Okay, thanks!

[barelystayingsane]

One other question on these formulas: the answer to a Becker question says that if the company did not have preferred stock the degree of total leverage would decrease in proportion to a decrease in financial leverage. I understand the decrease part, but I don't understand how it would be in proportion. Can anyone explain that to me?

Thanks!

[Author]

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