For DFL calculation when preference dividend exists, the denominator u…

Question

For DFL calculation when preference dividend exists, the denominator uses:

Accepted Answer

A. EBIT − Interest − Pref Dividend / (1 − t)

1. DFL = EBIT / (EBIT − I − [Pref Div / (1−t)]).
2. Pref dividend is post-tax, so it is grossed-up by dividing by (1−t).
3. This adjusts pref dividend to pre-tax equivalent.
_Source: ICAI BoS CA Inter Paper 6A, Ch 6 "Financing Decisions — Leverages", §4.1_

Answer

EBIT − Interest

Answer

EBIT − Pref Dividend

Answer

EBT − Tax