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A firm has DFL = 2 and EBIT falls by 10%. EPS will change by:
A−5%
B−20%
C−10%
D−30%
Answer & Solution
Correct answer: B. −20%
1. %ΔEPS = DFL × %ΔEBIT = 2 × (−10%).
2. Result = −20%.
3. Financial leverage amplifies the EBIT decline onto EPS.
_Source: ICAI BoS CA Inter Paper 6A, Ch 6 "Financing Decisions — Leverages", §4.1_
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