Consider the following income statement.

BALMORAL GROCERS LTD. Year ended, Dec. 31

Sales Variable Costs

Contribution Fixed Costs

Earnings before interest and taxes (EBIT) Interest Expense

Earnings before taxes (EBT) Taxes @ 35%

Earnings after taxes Shares

Earnings per Share (EPS)

$2,500,000 1,000,000 1,500,000

890,000 610,000 95,000 515,000 180,250 334,750 90,000

1. a) Given the above income statement for Balmoral Grocers Ltd., calculate the earnings per share (EPS). (1 point)

2. b) Given the above income statement for Balmoral Grocers Ltd., calculate the degree of operating leverage.(2 points)

3. c) Given the above income statement for Balmoral Grocers Ltd., calculate the degree of financial leverage.(2 points)

4. d) Given the above income statement for Balmoral Grocers Ltd., calculate the degree of combined or total leverage. (1.5 points)

5. e) Interpret in words what the number you arrived at in c) for the degree of financial leverage means using the special definition for financial leverage. (2 points)

6. f) Find the percentage decrease in earnings per share if there is a 15% decrease in sales revenue.