Situation of firm using conservative financing plan

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Reference no: EM131886337

A company has sales of $1,500,000, $450,000 in variable costs, and $540,000 in fixed costs. The company has total assets in the amount of $2,000,000. They use 50% equity financing and 50% debt financing at 9% interest.

Which of the following is true?

a. EBIT for this company is $580,000.

b. DFL is 1.2.

c. DFL is 1.5.

d. EBIT is $1,050,000.

e. All of these choices are false.

2. Which of the following best describes the situation of a firm using a conservative financing plan?

a. a high degree of financial leverage.

b. a high degree of combined leverage.

c. heavy reliance on equity.

d. heavy reliance on debt.

Reference no: EM131886337

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