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Megan Ryan & Associates has operating income (EBIT) of $190,000, fixed costs of $80,000, interest expense...

Megan Ryan & Associates has operating income (EBIT) of $190,000, fixed costs of $80,000, interest expense of $52,000, and its tax rate is 40 percent. If the company were able to increase its operating income by 14 percent, by what percentage would the earnings per share increase?

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Expert Solution

Net Income (Original)

Particulars Amount ($)
EBIT         1,90,000
Fixed Cost             80,000
Interest             52,000
Net Income             58,000
Tax - 40%             23,200
Profit After Tax             34,800

Net Income after Increase in Operating Profit by 14% (Revised):

Particulars Amount ($)
EBIT         2,16,600
Fixed Cost             80,000
Interest             52,000
Net Income             84,600
Tax - 40%             33,840
Profit After Tax             50,760

Hence, as per above calculations, Earning Per Share will increase by 45.86%

ekkarill92 answered 1 year ago
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