Unit sales are expected to reach 30,000 per year, the price per unit is expected to be $80, 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 total leverage at the expected levels? Using the degree of total leverage, what is the expected percentage change in earnings per share (EPS) if sales turn out to be 16% lower than expected?

Unit sales are expected to reach 30,000 per year, the price per unit is expected to be $80, 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 total leverage at the expected levels? Using the degree of total leverage, what is the expected percentage change in earnings per share (EPS) if sales turn out to be 16% lower than expected?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter14: Capital Structure Management In Practice

Section: Chapter Questions

Problem 10P

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