Answered step by step
Verified Expert Solution
Question
1 Approved Answer
It is December 31. Last year, Campbell Construction had sales of $160,000,000, and it forecasts that next year's sales will be $144,000,000. Its fixed costs
It is December 31. Last year, Campbell Construction had sales of $160,000,000, and it forecasts that next year's sales will be $144,000,000. Its fixed costs have been-and are expected to continue to be-$80,000,000, and its variable cost ratio is 21.00%. Campbell's capital structure consists of a $15 million bank loan, on which it pays an interest rate of 8%, and 750,000 shares of common equity. The company's profits are taxed at a marginal rate of 40%. Given this data, complete the following sentences: Note: For these computations, round each EPS to two decimal places. The company's percentage change in EBIT is The percentage change in Campbell's earnings per share (EPS) is_ The degree of financial leverage (DFL) at $144,000,000 is The following are the two principal equations that can be used to calculate a firm's DFL value: v Percentage Change in EPS DFL (at EBIT = $X) = Percentage Change in EBIT DFL (at EBIT = $x) = - EBIT EBIT-Interest - Preferred Dividend's podends Tax Rate) Consider the following statement about DFL, and indicate whether or not it is correct
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started