Unformatted text preview: b. Calculate the firm’s earnings per share (EPS) in tabular form at (1) the current level of sales and (2) a 120,000-unit sales level.
c. Using the current $750,000 level of sales as a base, calculate the firm’s degree
of operating leverage (DOL).
d. Using the EBIT associated with the $750,000 level of sales as a base, calculate the firm’s degree of financial leverage (DFL).
e. Use the degree of total leverage (DTL) concept to determine the effect (in percentage terms) of a 50% increase in TOR’s sales from the $750,000 base
level on its earnings per share.
LG5 LG3 ST 11–2 EBIT–EPS analysis Newlin Electronics is considering additional financing of
$10,000. It currently has $50,000 of 12% (annual interest) bonds and 10,000
shares of common stock outstanding. The firm can obtain the financing through
a 12% (annual interest) bond issue or through the sale of 1,000 shares of common stock. The firm has a 40% tax rate.
a. Calculate two EBIT–EPS coordinates for each plan by selecting any two EBIT
values and finding their a...
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