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

Oct 3rd, 2015
Oct 3rd, 2015
Oct 25th, 2016
Mark as Final Answer
Unmark as Final Answer
Final Answer

Secure Information

Content will be erased after question is completed.

Final Answer