Another question on financial leverage that I need help with

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

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

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

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

Please let me know if you need any clarification. I'm always happy to answer your questions.
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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