Interest expense calculating when DFL or DTL

[sachin_patel]

I though we have to consider amortizaion of discount or permium when calculating the interest expense.
It’s not just same as coupon payments.
In below example current yield is 8% and coupon payments are 7% so i assume its issued at discount.
Now can I just go ahead and use 7% coupon payment in calculating interest expense for DFL or DTL calculation?
Thanks in advance.
The following information reflects the projected operating results for Opstalan, a catalog printer.

• Sales of $5.0 million.
• Variable Costs at 40% of sales.
• Fixed Costs of $1.0 million.
• Debt interest payments on $1.5 million issued with an annual 7.0% coupon (current yield is 8.0%).
• Tax Rate of 0.0%.

Opstalan’s degree of total leverage (DTL) is closest to:
A. 2.58.
B. 1.41.
C. 1.59.

First, calculate the operating results:
Opstalan Annual Operating Results
Sales
$5,000,000
Variable Costs
2,000,000

3,000,000
Fixed Costs
1,000,000
EBIT
2,000,000
Interest Expense
105,000

1,895,000
Variable costs = 0.40 × 5,000,000
Interest Expense = 0.07 × 1,500,000
Second, calculate DOL = (Sales − Variable Costs) / (Sales − Variable Costs − Fixed Costs) = 3,000,000 / 2,000,000 = 1.50
Third, calculate DFL = EBIT / (EBIT − I) = 2,000,000 / 1,895,000 = 1.06.
Finally, calculate DTL = DOL × DFL = 1.50 × 1.06 = 1.59.
Answer: C