A firm has EBIT of $375,000, interest expense of $75,000, preferred dividends of $6,000 and a tax rate of 40 percent. The firm's degree of financial leverage at a base EBIT level of $375,000 is ________

Which one of the following is correct in relation to pro forma statements?

A. Fixed assets must increase if sales are projected to increase. B. Net working capital is affected only when a firm's sales are expected to exceed the firm's current production capacity. C. The addition to retained earnings is equal to net income plus dividends paid. D. Long-term debt varies directly with sales when a firm is currently operating at maximum capacity. E. Inventory changes are directly proportional to sales changes.

The profitability index is computed by dividing the

a. total cash flows by the initial investment. b. present value of cash flows by the initial investment. c. initial investment by the total cash flows. d. initial investment by the present value of cash flows.