It is December $31.$ Last year, Water and Power Company $($W&P$)$ had sales of $$160,000,000,$ and it forecasts that next year$$s sales will be $$179,200,000.$ Its fixed costs have been$$and are expected to continue to be$$$$72,000,000,$ and its variable cost ratio is $15\mathrm{.}00\%.$ W&P$$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 $35\%.$ Given this data, compute the following:

$$ The company$$s percentage change in EBIT is $.$

$$ The percentage change in W&P$$s earnings per share $($EPS$)$ is $.$

$$ The degree of financial leverage $($DFL$)$ at $$179,200,000$ is $.$

Consider the following statement about DFL$,$ and indicate whether or not it is correct.

Assume that at a given level of sales, the firm$$s DFL is $4\mathrm{.}50.$ This means that a $1\%$ decrease in the firm$$s EBIT will result in a corresponding $4\mathrm{.}5\%$ increase in the firm$$s EBIT.

False

True