Manchu Company Had Net Income of $140,000 and Interest Expense

question 63

Multiple Choice

Manchu company had net income of $140,000 and interest expense of $30,000. If the corporate tax rate was 30%, determine its Degree of Financial Leverage (DFL) .

• A) 1.00
• B) 1.05
• C) 1.10
• D) 1.15
• E) 1.20

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Definitions:

Required Return

The lowest percentage of annual income required to seduce investors, whether individual or corporate, to a particular security or project.

Constant Dividend

A dividend policy where a firm pays out a fixed amount of dividends each year to its shareholders regardless of the firm's earnings.

Equity Investments

Equity investments involve purchasing shares of a company, thereby obtaining ownership interest, with the expectation of earning dividends or profiting from share price appreciation.

Rate of Return

Outcomes in terms of profit or loss on an investment during a defined period, voiced as a percentage of the investment’s initial pricing.