Assume That a Firm Has a Degree of Financial Leverage

question 6

Multiple Choice

Assume that a firm has a degree of financial leverage of 1.25. If sales increase by 20%, the firm will experience a 60% increase in EPS, and it will have an EBIT of $100,000. What will be the EBIT for this firm if sales do not increase?

• A) $60,980
• B) $70,946
• C) $67,568
• D) $57,931
• E) $64,189