2D5C SUSAN HINES HAS DEVELOPED AN ESTIMATE OF THE EARNINGS PER SHARE...

354.

CSO: 2D5a

LOS: 2D5c

Susan Hines has developed an estimate of the earnings per share for her firm for the next

year using the following parameters.

Sales

$20 million

Cost of goods sold

70% of sales

General & administrative expenses

$300,000

Selling expense

$100,000 plus 10% of sales

Debt outstanding

$5 million @ 8% interest rate

Effective tax rate

35%

Common shares outstanding

2 million

She is now interested in the sensitivity of earnings per share to sales forecast changes. A

10% sales increase would increase earnings per share by

a.

7.0 cents per share.

b.

10.4 cents per share.

c.

13.0 cents per share.

d.

20.0 cents per share.