Description
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?
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Explanation & Answer
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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% |
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