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EBIT ₹6 lakh; Interest ₹2 lakh. Degree of Financial Leverage is:
A1.0
B1.25
C1.5
D2.0
Answer & Solution
Correct answer: C. 1.5
1. DFL = EBIT / (EBIT − Interest) = 6 / (6 − 2).
2. = 6 / 4 = 1.5.
3. A 1% change in EBIT will cause 1.5% change in EPS.
_Source: ICAI BoS CA Inter Paper 6A, Ch 6 "Financing Decisions — Leverages", §4.1_
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