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If a company has no debt, what is the Financial Leverage?
AZero
B1
CUndefined
DHigh
Answer & Solution
Correct answer: B. 1
1. With no debt, Interest = 0 and no preference dividend.
2. DFL = EBIT / (EBIT − 0) = 1.
3. No financial risk amplification.
_Source: ICAI BoS CA Inter Paper 6A, Ch 6 "Financing Decisions — Leverages", §4.1_
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