Question 2a) A firm that employs a relatively large proportion of debt in its capital structure will have a relatively ____ degree of financial leverage.

-LOW

high

insignificant

constant

Question 1b)

A DFL (degree of financial leverage) of 3.0 indicates that a 27% increase in EPS is the result of a ____ increase in EBIT.(hint: the EBIT moves __% causing a magnified increase 3 times that in EPS.)

-81%

3%

9%

6%

Question 1c)Financial leverage increases a firm's ROE and EPS under which of the following circumstances?ROCE= Return on Capital Employed

ROCE = cost of debt

ROCE> after tax cost of debt

ROCE>pre tax cost of debt

ROCE = cost of equity