Which of the following mathematical expressions is used to compute the degree of financial leverage (DFL) at a particular level of earnings before interest and taxes (EBIT)? Assume the firm has no preferred stock.
A. DFL = Earnings before interest and taxes ÷ Earnings per share (EPS)
B. DFL = Gross profit ÷ Earnings before interest and taxes
C. DFL = Sales ÷ (Earnings before interest and taxes - Interest)
D. DFL = Earnings before interest and taxes ÷ (Earnings before interest and taxes - Interest)
E. DFL = (Earnings before interest and taxes - Interest - Taxes) ÷ Number of shares
Answer: D
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A. 
B. 
C. 
D. 
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