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Answer (A) is correct . Debt financing increases a firm’s financial leverage, that is, the high fixed charges that accompany the legal obligation to pay interest to debtholders makes the firm riskier. These high fixed costs make profitable periods more profitable and unprofitable periods worse. Thus, a given decrease in EBIT will result in a proportionally larger decrease in EPS.

Answer (B) is incorrect because The beta value of a firm’s stock is dependent on its relationship to the rest of the market, not the firm’s financial leverage.
Answer (C) is incorrect because Financial leverage (i.e., interest expense) impacts the income statement after EBIT.
Answer (D) is incorrect because Any income statement item that affects EBIT necessarily affects EPS as well.