Questions A-C

Degree of financial leverage Northwestern Savings and Loan has a current capital structure consisting of $270,000 of 18% (annual interest) debt and 4,000 shares of common stock. The firm pays taxes at the rate of 30%. a. Using EBIT values of $80,000 and $123,000, determine the associated earnings per share (EPS). b. Using $80,000 of EBIT as a base, calculate the degree of financial leverage (DFL). c. Rework parts a and b assuming that the firm has $106,000 of 18% (annual interest) debt and 5,000 shares of common stock