Sara\'s Baked Goods Company reported the following income statement for 2007: Sa

Question

Sara's Baked Goods Company reported the following income statement for 2007:

Sales $1,800,000

Variable Costs 600,000

Fixed Operating Costs 500,000

EBIT 700,000

Interest Expense 100,000

EBT 600,000

Taxes (40%) 240,000

Net Income $360,000

Earnings Per Share $3.60

If Sara's sales next year increase by 30%, Sara's earnings per share will be:

a. $3.60

b. $5.76

c. $4.68

d. $4.45

Using the information above, if sara's sales next year increase by 30%, sara's EBIT will increase

A) 30% showing now operating leverage

B) 30% showing no financial leverage

C) over 50%, due to operating leverage

D) over 50%, due to operating leverage and financial leverage

Explanation / Answer

At 100%

At 100%

30% At 130% Sales 1800000 540000 2340000 Variable cost 600000 180000 780000 Fixed cost 500000 500000 EBIT 700000 1060000 Interest 100000 100000 EBT 600000 960000 Tas 40% 240000 384000 Net Income 360000 576000 EPS $3.60 $5.76

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