Question on financial leverage

Business & Finance
Tutor: None Selected Time limit: 1 Day

Irresistible Chips is reviewing its financial condition. The firm generated an operating profit of $3,917,960. The firm’s interest expense was $2,322,170.

What will be the resulting percentage change in earnings per share if they expect operating profit to change 1.0 percent? 

(You should calculate the degree of financial leverage first).

Round the answer to two decimals

Oct 3rd, 2015

Thank you for the opportunity to help you with your question!

Change 1%
EBIT $3,917,960 $3,957,140
Less: Interest -$2,322,170 -$2,322,170
Earning before Tax (EBT) $1,595,790 $1,634,970
Degree of Financial Leverage = EBIT/(EBT) 2.455185206 2.42031387
Earning per share / EBIT = DOL
EPS = EBIT/DOL $1,595,790.00 $1,634,969.60
Change IN EPS= ($1,634,969.60- $1,595,790)/$1,595,790 2.455%
change in EPS.xlsx

Please let me know if you need any clarification. I'm always happy to answer your questions.
Oct 3rd, 2015

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