Question

g Last year Lexington had sales of $884,000 and paid taxes of $50,000. Because of the low interest rate environment, the firm also borrowed some money from the local bank and paid $36,000 in interest expense. In addition, the firm incurred Variable Costs and Fixed Costs of $447,000 and $400,000 respectively. If sales increase by 5%, what should be the increase in earnings per share

Answer 1

Answer:

Lexington

The increase in earnings per share is 44.59%.

Explanation:

a) Data and Calculations:

                                   Last Year       5% increase

Sales revenue          $884,000        $928,200

Variable costs            447,000           469,350

Contribution            $437,000         $458,850

Fixed costs               400,000            400,000

Operating income    $37,000            $58,850

Interest expense        36,000              36,000

Income before tax         1,000              22,850

Income taxes             50,000              50,000

Net loss                   $49,000             $27,150

Increase = 44.59% ($21,850/$49,000 * 100)