In: Finance
The company incurs costs of $23.79 million regardless of the output level. It sells 6.94 million units of its product at the price of $9.97, and its variable costs per unit are $2.2. The company has $50 million of debt with an annual interest rate of 5.39%. What is the degree of financial leverage at the current level of sales? Round to two decimals.
The degree of financial leverage at the current level of sales
Income Statement |
|
Particulars |
(Amount ($ in Million) |
Sales [6.94 Million x $9.97] |
69.1918 |
Less: Variable Costs [6.94 Million x $2.20] |
15.2680 |
Contribution Margin |
53.9238 |
Less: Fixedc Costs |
23.7900 |
EBIT |
30.1338 |
Less: Interest Expenses [$50 Million x 5.39%] |
2.6950 |
EBT |
27.4388 |
The degree of financial leverage = EBIT / EBT
= $30.1338 Million / $27.4388 Million
= 1.10 Times
Therefore, the degree of financial leverage at the current level of sales is 1.10