A firm has EBIT of $3.6M and debt of $15M on which it pays 8% interest. What is its Degree of Financial Leverage (DFL)?
A)1.0
B)1.4
C)1.5
D)1.6

Name: A firm has EBIT of $3.6M and debt of $15M on which it pays 8% interest. What is its Degree of Financial Leverage (DFL)? A)1.0 B)1.4 C)1.5 D)1.6
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Question

Quizplus · Accepted Answer

DFL = (EBIT / EBIT - Interest) * (Interest / Net Income)
DFL = ($3.6M / $3.6M - ($15M *.08)) * ($15M*.08 / ($3.6M - ($15M*.08)))
DFL = 1.5

A Firm Has EBIT of $3