Question of the Week – Corporate Finance

Hi  @rogersp188 

So sorry for the mixup! We were in the middle of modifying the question. 

Since EBIT is also generally = Revenue – Fixed Costs – Variable Costs, we wanted to make sure the EBIT number matched accordingly. Hence the question and answers have been modified slightly from @exam_whiz’s original version. 

In our modified version:
EBIT 
= Rev – FC – VC 
= (15,000 x $10) – $12,000 – (15,000 x $7)
= $33,000

The question should be fully fixed now. So sorry again for the mixup!

Woo! I got it right. 🙂 

Too bad the 300 hours practice question #38 correct answer choice is displayed as “(B) Degree of operating leverage = 1.36, Degree of financial leverage = 1.57 ✔” even though the Degree of financial leverage is clearly 1.25…

as financial leverage= EBIT/(EBIT-Interest)   and Operating Leverage=Sales-FC/ EBIT

Financial Leverage = EBIT / EBIT – interest -> 15000/12000 = 1.25; Operating Leverage = Sales – TVC / Sales – TVC – FC = 150000 – 105000 / 150000 – 105000 – 12000 = 1.36