Unit sales are expected to reach 30,000 per year, the price per unit is expected to be $90, variable costs are $40 per unit and fixed costs are $80,000 per year. The company pays $250,000 in interest per year. What is the degree of financial leverage at the expected levels? Using the degree of financial leverage, what is the expected percentage change in earnings per share (EPS) if EBIT turns out to be 12% lower than expected?

Unit sales are expected to reach 30,000 per year, the price per unit is expected to be $90, variable costs are $40 per unit and fixed costs are $80,000 per year. The company pays $250,000 in interest per year. What is the degree of financial leverage at the expected levels? Using the degree of financial leverage, what is the expected percentage change in earnings per share (EPS) if EBIT turns out to be 12% lower than expected?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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