Northwestern Savings and Loan
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P11-10 Degree of financial leverage Northwestern Savings and Loan has a current capital structure consisting of $250,000 of 16% (annual interest) debt and 2,000 shares of common stock. The firm pays taxes at the rate of 40%.
a. Using EBIT values of $80,000 and $120,000, 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 $100,000 of 16% (annual interest) debt and 3,000 shares of common stock.
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Solution Summary
This solution explains how to use EBIT values to determine a company's associated earnings per share.
Education
- BA, Ain Shams University, Cairo Egypt
- MBA, California State University, Sacramento
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