CS Executive · Corporate Accounting and Financial Management · Capital Structure
A firm has a degree of combined leverage of 3 and a degree of operating leverage of 1.5. What is its degree of financial leverage?
The degree of financial leverage is 2.00. Combined leverage equals operating leverage multiplied by financial leverage, so DFL equals 3 divided by 1.5, which is 2. Multiplying the two given figures would be incorrect.
- A4.50
- B1.50
- C2.00Correct
- D0.50
Explanation
DCL = DOL x DFL, so DFL = 3/1.5 = 2.0. Choosing 4.5 multiplies the figures instead of dividing, which is the wrong operation.
Did you get it right without looking?
One question tells you little. A timed set on Capital Structure shows your real accuracy, how long you take and where you lose marks.
More Capital Structure questions
- Operating leverage arises primarily because of the presence of which of the following in a firm's cost structure?
- In financial management, the term 'capital structure' of a company refers to:
- Under the Net Operating Income (NOI) approach, which statement is correct?
- Under the NOI approach, Veda Ltd has EBIT of Rs 6,00,000 and overall capitalisation rate Ko of 12%. It has 10% debentures of Rs 20,00,000. W…
- Under the Traditional approach, as debt is added from zero, the overall cost of capital behaves as follows:
- Narmada Pharma Ltd. has the following capital structure at book values: equity share capital and reserves Rs 6,00,000 (cost 15%), 12% prefer…