7B-4

Use the following information about Rat Race Home Security, Inc. to answer the questions:

Average selling price per unit $321.

Variable cost per unit $187

Units sold 352

Fixed costs $6,139

Interest expense 17,889

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 3.2 percent?

(You should calculate the degree of financial leverage first).