Question on financial leverage

Business & Finance
Tutor: None Selected Time limit: 1 Day

Irresistible Chips is reviewing its financial condition. The firm generated an operating profit of $5,896,790. The firm’s interest expense was $2,815,060.

 What is the firm’s degree of financial leverage? Round the answer to two decimals

My professor came up with 1.91. Please explain this problem. 

Oct 4th, 2015

Thank you for the opportunity to help you with your question!

Degree of financial leverage = Operating profit/[Operating profit-interest expense]

Degree of financial leverage =$5,896,790/[$5,896,790-$2,815,060]

Degree of financial leverage =$5,896,790/$3,081,730

Degree of financial leverage = 1.91 (two decimals)

Please accept the answer and give me your feedback .


Please let me know if you need any clarification. I'm always happy to answer your questions.
Oct 4th, 2015

Thank you so much!

Oct 4th, 2015

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