A firm has an unlevered cost of equity of rho $=11\mathrm{.}25\%.$ The cost of debt is $5\%.$ The tax rate is $T=20\%.$ EBIT $=5,625,000($constant

and perpetual$).$ There are $1M$ shares outstanding. The firm has $$20,000,000$ in debt.

I The degree of financial leverage is $1\mathrm{.}22$

II If EBIT decreases by $3\%,$ the levered firm's EPS decreases by $3\mathrm{.}66\%$

III If EBIT decreases by $3\%,$ the unlevered firm's EPS decreases by $3\%.$

a$.$ I and II

b$.$ III only

C$.$ I and III

d$.$ Il only

e$.$ I, II$,$ and III