CFA Practice Question

There are 120 practice questions for this study session.

CFA Practice Question

Consider a firm with sales of $500,000, cost of goods sold of $245,000, fixed operating costs of $50,000, and a financing expense of $60,000. The degree of financial leverage for this firm is ______.

A. 1.10
B. 1.24
C. 1.41
Correct Answer: C

DFL = EBIT/(EBIT - I) = ($500 - $245 - $50)/($500 - $245 - $50 - $60) = 1.41

User Contributed Comments 7

User Comment
newsky financing expense as the cost of capital
haarlemmer Well, I learned my lesson. It seems to me that I should automatically assume cogs=vc
Shelton DFL=EBIT/(EBIT-I)=(S-VC-F)/(S-VC-F-I) where EBIT=S-VC-F
steved333 COGS is always VC. Financing exp=I. So, EBIT/(EBIT-I) is (S-VC-F)/(S-VC-F-I)
2014 DFL = Q(p - v) - f/ Q(p-v) - f -c
gill15 really got to do the questions in this section.
Akiva What is VC?
You need to log in first to add your comment.