Degree of Financial Leverage(DFL) is given by,
Percentage change in EPS/Percentage change in EBIT
This Year | Last Year | |
EPS (Net income/no. of shares outstanding) |
3 | 2.4 |
EBIT (Sales-Operating Cost) |
600 | 500 |
DFL=25%/20%=1.25
$2,400,000/- is the EBIT that will cause the firm's EPS to be indifferent between issuing and not issuing debt.
Issuing Debt | Not issuing Debt | |
EBIT | 2,400,000 | 2,400,000 |
Less:Interest | 1,200,000 | - |
EBT | 1,200,000 | 2,400,000 |
Less: Tax@40% | 480,000 | 960,000 |
PAT | 720,000 | 1,440,000 |
No. of Shares | 500,000 | 1,000,000 |
EPS | 1.44 | 1.44 |
Can I please have answers to the following questions: sted cash Hlows and net present values....
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