If a firm has current earnings before interest and taxes of $100,000 and interest expense of $10,000, its degree of financial leverage would be:
A) 10
B) 1.11
C) .10
D) 1.10

Question

Quizplus · Accepted Answer

The degree of financial leverage (DFL) is calculated as: DFL = EBIT / (EBIT - Interest Expense). Plugging in the given values: DFL = $100,000 / ($100,000 - $10,000) = $100,000 / $90,000 = 1.11.

If a Firm Has Current Earnings Before Interest and Taxes