Matahari Berhad sells its product at RM50 per unit. Fixed cost per year is RM200,000 while variable cost is RM18 per unit. The firm has debt capital of RM400,000 and its interest rate is 8%. Firms tax rate is 30% and the total number of shares issued is 500,000 units.
a) Calculate earnings before interest and tax (EBIT) and earnings per share (EPS) at total sale of 15,000 units.
b) Calculate the degree of financial leverage at sales level of 15,000 units.
Based on the degree of financial leverage computed in (b) above, show the impact on earnings per share if: EBIT increase by 15% EBIT decrease by 15%