Problem #1 (22 marks) You have developed the following income statement for your corporation which represents the most recent year's operations which ended yesterday. Sales $45,750,000 Variable Costs -22,800,000 Gross Profit $22,950,000 Fixed Costs -9,200,000 Depreciation -4,000,000 EBIT $9,750,000 Interest -1,350,000 EBT $8,400,000 Tax 40% -3,360,000 Net Income $5,040,000 Shares Outstanding 2,000,000 EPS ENet income / # shares $2.52 Your supervisor in the controller's office just handed you a memo asking for written responses to the following questions. e. If the company is able to increase their sales by 25%, what percentage increase in EPS would you expect to observe? (2 marks) f. If the sales increase by 25%, what will the new EPS be? (2 marks) g. If the company's sales decrease by 25%, what will the new EPS be? (2 marks) h. If EBIT increases by 5%, what will the new EPS be? (2 marks) i. If the company were to reduce its reliance on debt financing such that interest expense were cut in half, how would this affect your answer to: (i) part (d)? (1 mark) (ii) part (e)? (3 marks) j. If the company's sales decrease by 7%, what will the new EBIT be? (2 marks) Problem #1 (22 marks) You have developed the following income statement for your corporation which represents the most recent year's operations which ended yesterday. Sales $45,750,000 Variable Costs -22,800,000 Gross Profit $22,950,000 Fixed Costs -9,200,000 Depreciation -4,000,000 EBIT $9,750,000 Interest -1,350,000 EBT $8,400,000 Tax 40% -3,360,000 Net Income $5,040,000 Shares Outstanding 2,000,000 EPS ENet income / # shares $2.52 Your supervisor in the controller's office just handed you a memo asking for written responses to the following questions. e. If the company is able to increase their sales by 25%, what percentage increase in EPS would you expect to observe? (2 marks) f. If the sales increase by 25%, what will the new EPS be? (2 marks) g. If the company's sales decrease by 25%, what will the new EPS be? (2 marks) h. If EBIT increases by 5%, what will the new EPS be? (2 marks) i. If the company were to reduce its reliance on debt financing such that interest expense were cut in half, how would this affect your answer to: (i) part (d)? (1 mark) (ii) part (e)? (3 marks) j. If the company's sales decrease by 7%, what will the new EBIT be? (2 marks)