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Hassan Hossainzada
on Dec 01, 2024

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If a firm's EBIT changes by 20% and it has a degree of financial leverage (DFL) of 2.0, what is the expected change in earnings per share (EPS) ?

A) 20%
B) 40%
C) 50%
D) 60%

EBIT

Earnings Before Interest and Taxes, a measure of a company's profitability that excludes interest and income tax expenses.

Degree of Financial Leverage

A measure of a company's use of borrowed funds to finance its operations, indicating the sensitivity of its earnings to fluctuations in operational income.

EPS

Earnings Per Share (EPS) is a financial metric that indicates the portion of a company's profit allocated to each outstanding share of common stock.

  • Compute the degree of financial leverage and comprehend its consequences for the fluctuations in earnings per share (EPS).
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MG
Marlena GatlinDec 06, 2024
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