It is December 31. Last year, Water and Power Company (W&P) had sales of $120,000,000, and...

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It is December 31. Last year, Water and Power Company (W&P) had sales of $120,000,000, and it forecasts that next year's sales will be $129,600,000. Its fixed costs have been-and are expected to continue to be-$66,000,000, and its variable cost ratio is 10.00%. W&P's capital structure consists of a $15 million bank loan, on which it pays an interest rate of 12%, and 5,000,000 shares of outstanding common equity. The company's profits are taxed at a marginal rate of 35%. The following are the two principal equations that can be used to calculate a firm's DFL value: DFL (at EBIT = $X) = Percentage Change in EPS Percentage Change in EBIT Given this information, complete the following sentences: • The company's percentage change in EBIT is • The percentage change in W&P's earnings per share (EPS) is . The degree of financial leverage (DFL) at $129,600,000 is DFL (at EBIT = $X) = EBIT EBIT-Interest-Preferred Dividends (1-Tax Rate) (Hint: Use the changes in EPS and EBIT that you computed to determine DFL.) It is December 31. Last year, Water and Power Company (W&P) had sales of $120,000,000, and it forecasts that next year's sales will be $129,600,000. Its fixed costs have been-and are expected to continue to be-$66,000,000, and its variable cost ratio is 10.00%. W&P's capital structure consists of a $15 million bank loan, on which it pays an interest rate of 12%, and 5,000,000 shares of outstanding common equity. The company's profits are taxed at a marginal rate of 35%. The following are the two principal equations that can be used to calculate a firm's DFL value: DFL (at EBIT = $X) = Percentage Change in EPS Percentage Change in EBIT Given this information, complete the following sentences: • The company's percentage change in EBIT is • The percentage change in W&P's earnings per share (EPS) is . The degree of financial leverage (DFL) at $129,600,000 is DFL (at EBIT = $X) = EBIT EBIT-Interest-Preferred Dividends (1-Tax Rate) (Hint: Use the changes in EPS and EBIT that you computed to determine DFL.)

Answer rating: 100% (QA)

ANSWER The companys percentage change in EBIT is calculated as follows Percentage Change in EBIT EBI... View the full answer