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Homework answers / question archive / It is December 31 Last year, Torres Industries had sales of $120,000,000, and it forecasts that next year’s sales will be $114,000,000
It is December 31 Last year, Torres Industries had sales of $120,000,000, and it forecasts that next year’s sales will be $114,000,000. Its fixed costs have been—and are expected to continue to be—$72,000,000, and its variable cost ratio is 1.00%. Torres’s capital structure consists of a $15 million bank loan, on which it pays an interest rate of 8%, and 750,000 shares of common equity. The company’s profits are taxed at a marginal rate of 40%. Given this data, complete the following sentences:
Note: Round intermediate calculations to two decimal places.
| • | The company’s percentage change in EBIT is ________? |
| • | The percentage change in Torres’s earnings per share (EPS) is ________ ? |
| • |
The degree of financial leverage (DFL) at $114,000,000 is _______? Assume that a firm’s fixed capital costs remain constant across a range of operating profit (EBIT) values. The firm’s DFL will vary across the range of EBIT values. True False |
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