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      Question

      A firm has sales of Rs. 50,00,000, variable costs of Rs.

      30,00,000, and fixed costs of Rs. 10,00,000. It has debt of Rs. 20,00,000 at 10% interest. What is the Degree of Financial Leverage (DFL) at EBIT level?
      A 1.25 Correct Answer Incorrect Answer
      B 1.50 Correct Answer Incorrect Answer
      C 2.00 Correct Answer Incorrect Answer
      D 2.50 Correct Answer Incorrect Answer
      E 3.00 Correct Answer Incorrect Answer

      Solution

      EBIT = Sales – Variable costs– Fixed costs = 50,00,000- 30,00,000 – 10,00,000 = ₹10,00,000; DFL = EBIT ÷ (EBIT – Interest). = 10,00,000 ÷ (10,00,000 – 2,00,000) = 10,00,000 ÷ 8,00,000 = 1.25.

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