Asked by
Hassan Hossainzada
on Dec 01, 2024Verified
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).
Verified Answer
MG
Learning Objectives
- Compute the degree of financial leverage and comprehend its consequences for the fluctuations in earnings per share (EPS).