7. A review of the degree of financial leverage (DFL) It is December 31. Last year, Water and Power Company (W&P) had sales of $120,000,000, and it forecasts that next year's sales will be $124,800,000. Its fixed costs have been-and are expected to continue to be-$66,000,000, and its variable cost ratio is 20.00%. W&P's capital structure consists of a $15 million bank loan, on which it pays an interest rate of 12%, and 5,000,000 shares of outstanding common equity. The company's profits are taxed at a marginal rate of 35%. 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- (1- Tax Rate) Given this information, complete the following sentences: The company's percentage change in EBIT is The percentage change in W&P's earnings per share (EPS) is The degree of financial leverage (DFL) at $124,800,000 is . (Hint: Use the changes in EPS and EBIT that you computed to determine DFL.) Consider the following statement about DFL, and indicate whether or not it is correct. Assume that a firm's fixed capital costs remain constant across a range of operating profit (EBIT) values. The firm's DFL will vary across the range of EBIT values. True False