A firm's assets are finance with 60 percent debt and 40 percent common equity. As a result, we know that the firm must have:

Question

Quizplus · Accepted Answer

A firm's financial leverage is measured by the degree of financial leverage (DFL), which is the ratio of percentage change in earnings per share (EPS) to percentage change in earnings before interest and taxes (EBIT). A higher DFL indicates higher financial leverage, meaning that the firm is more reliant on debt financing. Since the firm's assets are financed with 60% debt and 40% equity, it has a higher DFL, which must be greater than 1.0. The other options are not necessarily related to the firm's capital structure.

A Firm's Assets Are Finance with 60 Percent Debt and 40