Fundamentals of Financial Manageme...
Solutions
Fundamentals of Financial Manageme...
Why is EBIT generally considered independent of financial leverage? Why might EBIT actually be affected by financial leverage-at high debt levels?
To explain: The reasons to consider EBIT independent of financial leverage and the effects on EBIT at high debt level.
Introduction:
Earnings before Interest and Tax (EBIT):
It refers to the income before the payment of interest and tax. These are the earnings left after the operating expenses of the firm.
- EBIT is independent of financial leverage as EBIT is an operating income before interest and tax.
- At a high debt level, EBIT will be affected as the interest on debt is paid out of EBIT, therefore sufficient EBIT is required to pay the interest on debt...
Chapter 14 Solutions
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