- CFA Exams
- CFA Level I Exam
- Topic 3. Corporate Issuers
- Learning Module 6. Capital Structure
- Subject 2. Factors Affecting Capital Structure
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 ______.
B. 1.24
C. 1.41
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? |