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.