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A company with EBIT ₹12 lakh and 10% debt ₹40 lakh has Financial Leverage of:
A1.5
B1.0
C2.0
D3.0
Answer & Solution
Correct answer: A. 1.5
1. Interest = 10% × 40 lakh = ₹4 lakh.
2. DFL = EBIT / (EBIT − I) = 12 / (12 − 4).
3. = 12 / 8 = 1.5.
_Source: ICAI BoS CA Inter Paper 6A, Ch 5 "Financing Decisions — Capital Structure", §3_
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