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

question 31

Multiple Choice

If EBIT equals $280,000 and interest equals $20,000, with a tax rate of 31%, what is the degree of financial leverage?

• A) 14.00x
• B) 9.66x
• C) 3.91x
• D) 1.08x

---

Definitions:

Investment Allowance

A tax benefit that allows businesses to deduct a percentage of certain capital expenditures from their taxable income.

Tax Deduction

Expenses subtracted from gross income to determine taxable income, which can reduce the amount of tax owed.

Net Present Value

A method used in capital budgeting to evaluate the profitability of an investment or project, reflecting the present value of all future cash flows minus initial investments.

Internal Rate

Often synonymous with "Internal Rate of Return," referring to the discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero.