The financial manager of ABC Ltd expects earnings before interest and taxes of 50,000 in the current financial year and pays interest of 10% as long-term loan of 200 000. The company has 100 000 ordinary shares and the tax rate is 20%. The finance manager is currently examining 2 scenarios.

A case where EBIT is 25% less than expected.

A case where EBIT is 25% more than expected.

REQUIRED

Compute the EPS under the 3 cases and the degree of financial gearing for both scenario 1 and 2.