Risk Management Process Overview
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Questions and Answers

What is the formula for calculating the Degree of Financial Leverage (DFL)?

  • DFL = (% Change in EBIT) / (% Change in Net Income)
  • DFL = (% Change in Net Income) / (% Change in Revenue)
  • DFL = (% Change in Net Income) / (% Change in EBIT) (correct)
  • DFL = (% Change in EBIT) / (% Change in Revenue)

What is the net income of the business in the given example?

  • $54,400
  • $32,500 (correct)
  • $29,900
  • $56,000

What is the percent change in net income for the business in the given example?

  • 8.7% (correct)
  • 56%
  • 32.5%
  • 2.95%

What is the formula for calculating Earnings Before Interest and Taxes (EBIT)?

<p>EBIT = Net Income + Interest + Taxes (A)</p> Signup and view all the answers

What is the EBIT for the business in the given example?

<p>$56,000 (D)</p> Signup and view all the answers

What is the percent change in EBIT for the business in the given example?

<p>2.95% (D)</p> Signup and view all the answers

What does a higher value of the Degree of Financial Leverage (DFL) indicate?

<p>The business has a higher level of fixed costs (A)</p> Signup and view all the answers

What is the significance of the Degree of Financial Leverage (DFL) for a business?

<p>It helps in evaluating the risk associated with the business's capital structure (D)</p> Signup and view all the answers

What is the purpose of calculating the Degree of Financial Leverage (DFL)?

<p>To measure the sensitivity of a company's net income to changes in its EBIT (A)</p> Signup and view all the answers

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