Assume That a Firm Currently Has EBIT of $2,000,000,a Degree

question 11

Multiple Choice

Assume that a firm currently has EBIT of $2,000,000,a degree of total leverage of 7.500,and a degree of financial leverage of 1.875.If sales decline by 20% next year,then what will be the firm's expected EBIT in one year? Do not round intermediate calculations.

• A) $464,000
• B) $400,000
• C) $488,000
• D) $372,000
• E) $324,000

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Definitions:

Temporary Investments

Investments not intended to be held for a long term, such as stocks or bonds, purchased with the intention of selling in the near future.

Accounts Receivable

Money that is owed to a company by its customers for goods or services that have been delivered or used but not yet paid for.

Quick Ratio

A liquidity measure that indicates a company’s ability to pay its current liabilities without relying on the sale of inventory, calculated as (current assets - inventories) / current liabilities.

Liability Likelihood

Refers to the probability that a company will be responsible for payment due to a debt, claim, or lawsuit.