Degree of financial leverage - Northwestern Savings and Loan has a current capital structure consisting of $ 250,000 of 15 % ?(annual interest) debt and 3,000 shares of common stock. The firm pays taxes at the rate of 40 %.
a. Using EBIT values of $ 76,000 and $116,000?, determine the associated earnings per share? (EPS).
b. Using $76,000 of EBIT as a? base, calculate the degree of financial leverage? (DFL).
c. Rework parts a and b assuming that the firm has $93,000 of 15 % (annual interest) debt and 4,000shares of common stock.