Question
1) A firm has the DFL of 2.15 at a given level of EBIT. If EBIT falls by 3.5% from the current level, what will
1) A firm has the DFL of 2.15 at a given level of EBIT. If EBIT falls by 3.5% from the current level, what will be the change in net income, to the nearest 0.01%? Drop the % symbol, do NOT ignore the negative sign.
2) A firm's net income increased by 7.8% when its EBIT increased by 5%. What was the firm's DFL at the initial level of EBIT, to the nearest 0.01? (Hint: DFL = %NI/%EBIT
3)What is the tax shield of debt for a firm with the outstanding debt of $50 million with an interest rate of 5% if it faces the tax rate of 28%? Report your answer to the nearest dollar, drop the $ sign.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started