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Calculate the DFL for the firm

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Question - DFL and graphical display of financial plans. Wells and Associates has EBIT of $67,500. Interest costs are $22,500, and the firm has 15,000 shares of common stock outstanding. Assume a 40% tax rate.

a. Use the degree of financial leverage (DFL) formula to calculate the DFL for the firm.

b. If the firm also has 1,000 shares of preferred stock paying a $6.00 annual dividend per share, what is the DFL?

Reference no: EM132975674

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