Another question on financial leverage that I need help with


label Business
account_circle Unassigned
schedule 1 Day
account_balance_wallet $5

Use the following information about Rat Race Home Security, Inc. to answer the questions:

Average selling price per unit $316.

Variable cost per unit $193

Units sold 317

Fixed costs $7,997

Interest expense 18,791

 Based on the data above, what will be the resulting percentage change in earnings per share of Rat Race Home Security, Inc. if they expect operating profit to change 7.4 percent?

Oct 3rd, 2015

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

Operating profit = profit before interest and taxes = (316-193)*317-7997=30994

Projected operating profit to be reduced by 7.4% = 30994*(100%-7.4%)= 28700

Present EPS = (30944-18791)/Number of Shares = 12153/Number of Shares

Projected EPS =( 28700-18791)/Number of Shares= 9909/Number of Shares


Projected change in EPS = {(12153-9909)/12153}*100%=18.5%


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

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