If a firm's EBIT changes by 20% and it has a degree of financial leverage (DFL) of 2.5, what is the expected change in earnings per share (EPS) ?

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

EBIT

A profitability metric that calculates a company's profits excluding interest and income tax expenses.

Degree of Financial Leverage

A ratio indicating the degree to which a company uses borrowed funds to finance its operations, affecting potential returns and risk.

EPS

Earnings per share, a key indicator that calculates the portion of a company's profit allocated to each outstanding share of common stock.