What is the total combined leverage?

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

Haunted Forest, Inc.is selling fog machines.

Use the following information about Haunted Forest, Inc. to answer the following questions.

Average selling price per unit $325.

Variable cost per unit $187

Units sold 369

Fixed costs $15,287

Interest expense $4,183

 Based on the data above, what will be the resulting percentage change in earnings per share if they expect units produced and sold to change -2.9 percent?

Round the answer to two decimals

Oct 3rd, 2015

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

EPS = earning per share = net income/number of shares

net income = revenues - expenses = number of units*selling price -{number of units*variable cost+fixed costs +interest expense}

=369*325-{369*187+15287+4183}= $ 31452

So EPS =  31452/number of shares

next year number of units is expected to decrease by 2.9%. Thus , new number of units will be

369*(100%-2.9%)=369*(97.1%)=358 (rounded to closest integer)

Expected Net Income  = 358*325-{358*187+15287+4183}= $ 29934

Expected EPS= 29934/number of shares

Since number of share is assumed to  be the same (not always true in real life) the decrease in EPS is simply {(31452-29934)/31452  }* 100% = 4.8%

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

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