Assume That a Firm Has a Degree of Financial Leverage

question 12

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

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Definitions:

Like-kind Exchange

A tax deferment strategy allowing for the exchange of similar types of property without the immediate tax liability.

FMV

stands for Fair Market Value, which is the estimated price an asset would sell for on the open market under current conditions.

Similar or Related

This term broadly refers to items, concepts, or entities that share common traits or have a connection in context, purpose, or function, often used in comparisons or legal interpretations.

Like-kind Exchange Requirements

Conditions that must be met for an exchange of property to qualify as tax-deferred under Section 1031 of the U.S. Internal Revenue Code.