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

Lexington

The increase in earnings per share is 44.59%.

Step-by-step 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)