Assume That a Firm Has a Degree of Financial Leverage

question 21

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? Do not round intermediate calculations.

• A) $64,189
• B) $77,703
• C) $67,568
• D) $54,054
• E) $68,243

---

Definitions:

Principal's Instructions

Guidelines or orders given by a principal to an agent detailing how to perform specific tasks or duties.

Agent's Authority

The scope of power given to an agent to act on behalf of a principal in legal or business matters.

Best for Principal

A standard or principle requiring actions or decisions to be made in the best interest of the principal or the party represented.

Agency Relationship

A legal arrangement where one party, the agent, is authorized to act on behalf of another, the principal, in business dealings.