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Calculate the degree of financial leverage

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Reference no: EM13292006

Utara Savings and Loan SdnBhd has a current capital structure consisting of RM250,000 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 RM80,000 and RM120,000, determine the associated earnings per share(EPS).
b) Using RM80,000 of EBIT as a base, calculate the degree of financial leverage (DFL).
c) Rework parts a and b assuming that the firm has RM100,000 of 16% (annual interest) debt and 3,000 shares of common stock.

 

Reference no: EM13292006

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