In 2016, Pineapple Grove had sales of $720,000 and paid taxes of $68,000. Because of the low...
- In 2016, Pineapple Grove had sales of $720,000 and paid taxes of $68,000. Because of the low interest rate environment, the firm also borrowed some money from the local bank and paid $30,000 in interest expense. In addition, the firm incurred Variable Costs and Fixed Costs of $250,000 and $200,000 respectively. If operating income increases by 5%, what should be the increase in earnings per share
Homework Answers
| Income Statement | |
| Sales Revenue | $ 720,000 |
| Variable Costs | 250,000 |
| Contribution Margin | 470,000 |
| Fixed Costs | 200,000 |
| Operating Income | 270,000 |
| Interest Expense | 30,000 |
| Income Before Taxes | 240,000 |
| Taxes | 68,000 |
| Net Income | $ 172,000 |
DFL = Operating Income / Net Income = 270,000 / 172,000 = 1.5698
If operating income increases by 5 %, increase in earnings per share = 5 % x 1.5698 = 7.85 %
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