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.
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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)
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