Table 1 has the following plans: Plan 1 Interest expense of R25000, Preferred dividend of 3000 and Common outstanding shares of 200 000

Plan 2 Interest expense of R50 000, Preferred dividend of R1 500 and 100 000 outstanding common shares.

What is the degree of financial leverage at a base level EBIT of R120,000 for both financial plans? The firm has a 40 percent tax rate. (See Table 1)

Choose the correct answer and show calculations A - Plan 1 = 1.73 and Plan 2 = 1.82 B - Plan 1 = 1.43 and Plan 2 = 1.62 C - Plan 1 = 1.33 and Plan 2 = 1.78 D - Plan 1 = 1.93 and Plan 2 = 1.22