Financial Leverage Flick’s EBIT is this year is $100,000. They paid $20,000 in interest and $30,000...
Financial Leverage
Flick’s EBIT is this year is $100,000. They paid $20,000 in interest and $30,000 in Dividends. The tax rate is 25%. What is their DFL?
Homework Answers
Degree of Financial Leverage (DFL)
Degree of Financial Leverage (DFL) = Earnings Before Interest & Tax / Earnings Before Tax
= EBIT / (EBT – Interest Expenses)
= $100,000 / ($100,000 - $20,000)
= $100,000 / $80,000
= 1.25
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