What would be the degree of financial leverage for Foggy Futures Weather Forecasters if the company has earnings before interest and taxes of$750,000, has a 4.5% loan on $1,000,000 and is in the 38% tax bracket? The firm does not have any preferred stock outstanding.
A)1.22
B)1.78
C)1.06
D)97

Question

Quizplus · Accepted Answer

$$\frac { 750,000 } { 750,000 - ( 0.045 \times 1,000,000 ) - 0 } = 750,000 / 705,000 = 1.06$$

What Would Be the Degree of Financial Leverage for Foggy