Corporate Finance Q109

109Using the firm’s income statement presented below, its degree of financial leverage is closest to:

Income Statement	$ millions
Revenues	15.2
Variable Operating Costs	9.8
Fixed Operating Costs	3.5
Operating Income	1.9
Interest	1.0
Taxable Income	0.9
Tax	0.2
Net Income	0.7

Option : B
Explanation : DFL = (Operating income) / (Operating income – Interest expense) = [Q(P - V) - F] / [Q(P - V) - F - C] = $1.9 / $0.9 = 2.11.

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