Table 1 has the following plans: Plan 1 with interest expense of R25000, Preferred dividend of 3000 and common outstanding shares of 200000. Plan 2 with interest expense of R50000, Preferred dividend of R1500 and 100000 outstanding common shares. What is the degree of financial leverage at a base level EBIT of R120,000 for both financing plans? The firm has a 40 percent tax rate.

Table 1 has the following plans: Plan 1 with interest expense of R25000, Preferred dividend of 3000 and common outstanding shares of 200000. Plan 2 with interest expense of R50000, Preferred dividend of R1500 and 100000 outstanding common shares. What is the degree of financial leverage at a base level EBIT of R120,000 for both financing plans? The firm has a 40 percent tax rate.

Entrepreneurial Finance

6th Edition

ISBN:9781337635653

Author:Leach

Publisher:Leach

Chapter14: Security Structures And Determining Enterprise Values

Section: Chapter Questions

Problem 10EP

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