Question
Degree of financial leverage Northwestern Savings and Loan has a current capital structure consisting of $250,000 of 17% (annual interest) debt and 2,000 shares of
Degree of financial leverage Northwestern Savings and Loan has a current capital structure consisting of
$250,000 of 17% (annual interest) debt and 2,000 shares of common stock. The firm pays taxes at the rate of 30%.
a. Using EBIT values of $82,000 and $124,000, determine the associated earnings per share (EPS).
b. Using $82,000 of EBIT as a base, calculate the degree of financial leverage (DFL).
c. Rework parts a and b assuming that the firm has
$92,000 of 17% (annual interest) debt and 3,000 shares of common stock.
a. Calculate the EPS for EBIT value of $82,000 below: (Round to the nearest dollar except for the EPS which should be rounded to the nearest cent.)
| EBIT | $ | 82000 |
| Less: Interest |
|
|
| Net profits before taxes | $ |
|
| Less: Taxes (30%) |
|
|
| Net profit after taxes | $ |
|
| EPS (2,000 shares) | $ |
|
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