If EBIT equals $280,000 and interest equals $20,000, with a tax rate of 31%, what is the degree of financial leverage?
A) 14.0x
B) 9.66x
C) 3.91x
D) 2.33x

Question

Quizplus · Accepted Answer

The degree of financial leverage (DFL) is calculated as EBIT / (EBIT - Interest). Here, DFL = $280,000 / ($280,000 - $20,000) = $280,000 / $260,000 = 1.0769. However, the choices provided seem to be incorrect based on this calculation. If we consider the closest option, it would be D) 2.33x, but this does not match the calculated DFL.

If EBIT Equals $280,000 and Interest Equals $20,000, with a Tax