It is fairly easy to determine how changes in a firm's degree of financial leverage (DFL) affect its P/E ratio.

Question

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The relationship between a firm's degree of financial leverage (DFL) and its P/E ratio is complex because it involves various factors such as the cost of debt, the stability of earnings, and investor perceptions of risk. Changes in DFL can affect the perceived riskiness of the firm and its future earnings potential, both of which are key determinants of the P/E ratio.

It Is Fairly Easy to Determine How Changes in a Firm's