##### Another question on financial leverage that I need help with

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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 4th, 2015

 Change 7.4% Sales (\$316 x 317 units) \$100,172 Less: variable cost (\$193 x 317 units) -\$61,181 Contribution Margin \$38,991 Less: Fixed cost -\$7,997 EBIT \$30,994 \$33,163.58 Less: Interest -\$18,791 -\$18,791 Earning before Tax (EBT) \$12,203 \$14,372.58 Degree of Financial Leverage = EBIT/(EBT) \$2.540 2.307420101 Earning per share / EBIT = DOL EPS = EBIT/DOL \$12,203.00 \$14,372.58 Change in EPS = (\$14,372.58 - \$12,203)/\$12,203 17.78%
financial leverage and EPS.xlsx

Oct 4th, 2015

Sorry, I have taken change in % as 7% instead of 7.4%.I have corrected the mistake. Please check this file

 Change 7.4% Sales (\$316 x 317 units) \$100,172 Less: variable cost (\$193 x 317 units) -\$61,181 Contribution Margin \$38,991 Less: Fixed cost -\$7,997 EBIT \$30,994 \$33,287.56 Less: Interest -\$18,791 -\$18,791 Earning before Tax (EBT) \$12,203 \$14,496.56 Degree of Financial Leverage = EBIT/(EBT) \$2.540 2.296238914 Earning per share / EBIT = DOL EPS = EBIT/DOL \$12,203.00 \$14,496.56 Change in EPS = (\$14,372.58 - \$12,203)/\$12,203 18.80%

financial leverage and EPS.xlsx

Oct 4th, 2015

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Oct 4th, 2015
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Oct 4th, 2015
Jun 25th, 2017
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