Assume That a Firm Has a Degree of Financial Leverage

question 8

Multiple Choice

Assume that a firm has a degree of financial leverage (DFL) of 1.25. If sales increase by 20 percent, the firm will experience a 60 percent increase in earnings per share (EPS) and it will have an earnings before interest and taxes (EBIT) of $100,000. What will be the EBIT for the firm if sales do not increase?

• A) $67,568
• B) $100,000
• C) $113,412
• D) $84,375
• E) $42,115