6. The computation and interpretation of the degree of financial leverage (DFL) It is December 31. Last year, Campbell Construction had sales of $120,000,000, and it forecasts that next year's sales will be $114,000,000. Its fixed costs have been-and are expected to continue to be-$60,000,000, and its variable cost ratio is 21.00%. Campbell's capital structure consists of a $15 million bank loan, on which it pays an interest rate of 8%, and 750,000 shares of common equity. The company's profits are taxed at a marginal rate of 40%. Given this data, complete the following sentences: Note: For these computations, round each EPS to two decimal places. The company's percentage change in EBIT is The percentage change in Campbell's earnings per share (EPS) is . The degree of financial leverage (DFL) at $114,000,000 is The following are the two principal equations that can be used to calculate a firm's DFL value: - DFL (at EBIT = $X) = Percentage Change in EPS Percentage Change in EBIT DFL (at EBIT = $X) = EBIT Preferred Dividends EBIT-Interest - Tax Rate Consider the following statement about DFL, and indicate whether or not it is correct. All other factors remaining constant, the larger the proportion of common equity used by the firm in its capital structure, the smaller the firm's DFL. O False O True 6. The computation and interpretation of the degree of financial leverage (DFL) It is December 31. Last year, Campbell Construction had sales of $120,000,000, and it forecasts that next year's sales will be $114,000,000. Its fixed costs have been-and are expected to continue to be-$60,000,000, and its variable cost ratio is 21.00%. Campbell's capital structure consists of a $15 million bank loan, on which it pays an interest rate of 8%, and 750,000 shares of common equity. The company's profits are taxed at a marginal rate of 40%. Given this data, complete the following sentences: Note: For these computations, round each EPS to two decimal places. The company's percentage change in EBIT is The percentage change in Campbell's earnings per share (EPS) is . The degree of financial leverage (DFL) at $114,000,000 is The following are the two principal equations that can be used to calculate a firm's DFL value: - DFL (at EBIT = $X) = Percentage Change in EPS Percentage Change in EBIT DFL (at EBIT = $X) = EBIT Preferred Dividends EBIT-Interest - Tax Rate Consider the following statement about DFL, and indicate whether or not it is correct. All other factors remaining constant, the larger the proportion of common equity used by the firm in its capital structure, the smaller the firm's DFL. O False O True