Which of the following mathematical expressions is used to compute the degree of financial leverage at a particular level of earnings before interest and tax (EBIT)? Assume that the preferred stockholders receive no dividends.?
A. ?Earnings before interest and tax ÷ Earnings per share (EPS)
B. ?Gross profit ÷ Earnings before interest and tax
C. ?Sales ÷ (Earnings before interest and tax - Interest)
D. ?Earnings before interest and tax ÷ (Earnings before interest and tax - Interest)
E. ?(Earnings before interest and tax - Interest - Taxes) ÷ Number of shares
Answer: D
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Back Company sold merchandise on credit. Its gross profit ratio is 23%. The effect of this transaction is that the
a. earnings per share decreased b. current ratio was unchanged c. debt-to-equity ratio increased d. earnings per share increased
Mays Company sold a machine for $10,000 cash. The machine originally cost $65,000 and the company had recognized $53,000 in depreciation over the life of the machine. What is the effect of this sale on Mays Company's income statement and its statement of cash flows?
Collins GroupThe Collins Group, a leading producer of custom automobile accessories, has hired you to estimate the firm's weighted average cost of capital. The balance sheet and some other information are provided below.
Assets Current assets$ 38,000,000 Net plant, property, and equipment 101,000,000 Total assets$139,000,000 Liabilities and Equity Accounts payable$ 10,000,000 Accruals 9,000,000 Current liabilities$ 19,000,000 Long-term debt (40,000 bonds, $1,000 par value) 40,000,000 Total liabilities$ 59,000,000 Common stock (10,000,000 shares)30,000,000 Retained earnings 50,000,000 Total shareholders' equity 80,000,000 Total liabilities and shareholders' equity$139,000,000 The stock is currently selling for $15.25 per share, and its noncallable $1,000 par value, 20-year, 7.25% bonds with semiannual payments are selling for $875.00. The beta is 1.25, the yield on a 6-month Treasury bill is 3.50%, and the yield on a 20-year Treasury bond is 5.50%. The required return on the stock market is 11.50%, but the market has had an average annual return of 14.50% during the past 5 years. The firm's tax rate is 25%. Refer to the data for the Collins Group. What is the best estimate of the after-tax cost of debt? A. 5.80% B. 6.10% C. 6.43% D. 6.75% E. 7.08%
Credibility is best defined as the:
A. level of preparation required to create an appropriate environment for the respondents participating in a research. B. degree to which research data is qualitative or quantitative in nature. C. degree to which a specific investigated issue leads the respondent to give a socially expected response. D. degree of rigor, believability, and trustworthiness established by qualitative research. E. degree to which the results of a research are socially acceptable.