A company has sales of $1,500,000, $450,000 in variable costs, and $540,000 in fixed costs. The company has total assets in the amount of $2,000,000. They use 50% equity financing and 50% debt financing at 9% interest.
Which of the following is true?
a. EBIT for this company is $580,000.
b. DFL is 1.2.
c. DFL is 1.5.
d. EBIT is $1,050,000.
e. All of these choices are false.
2. Which of the following best describes the situation of a firm using a conservative financing plan?
a. a high degree of financial leverage.
b. a high degree of combined leverage.
c. heavy reliance on equity.
d. heavy reliance on debt.