Which of the Following Mathematical Expressions Is Used to Compute

question 23

Multiple Choice

Which of the following mathematical expressions is used to compute the degree of financial leverage (DFL) at a particular level of earnings before interest and taxes (EBIT) ? Assume the firm has no preferred stock. 

• A)DFL = Earnings before interest and taxes ÷ Earnings per share (EPS)
• B)DFL = Gross profit ÷ Earnings before interest and taxes
• C)DFL = Sales ÷ (Earnings before interest and taxes - Interest)
• D)DFL = Earnings before interest and taxes ÷ (Earnings before interest and taxes - Interest)
• E)DFL = (Earnings before interest and taxes - Interest - Taxes) ÷ Number of shares

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Definitions:

Percent Rate

a rate that describes a portion of a hundred in finance, often related to interest or growth rates.

Portion

A part or segment of the whole, often expressed as a fraction or percentage.

Accurate

Describes information, measurements, or results that are exact, precise, and free from errors or mistakes.

Cent

A monetary unit equal to one hundredth of a larger unit, such as a dollar or euro.