16. Which of the following mathematical expressions is used to compute the degre

Question

16. Which of the following mathematical expressions is used to compute the degree of financial leverage at a particular level of earnings before interest and tax (EBIT)? Assume that the preferred stockholders receive no dividends. a. Earnings before interest and tax+ Earnings per share (EPS) b. Gross profit + Earnings before interest and tax c. Sales (Earnings before interest and tax - Interest) d. Earnings before interest and tax-earnings before interest and tax-Interest) e. (Earnings before interest and tax - Interest- Taxes)+Number of shares

Explanation / Answer

Profit before taxes=EBIT-interest

Hence DFL=EBIT/PBT

Hence the correct option is D.

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