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The Plastic Corporation has a current capital structure consisting of $400,000 of 10% debt and 3,000 shares of common stock. The tax rate is 40%. Determine the earnings per share (EPS) when EBIT is $80,000 and $120,000. Calculate the degree of financial leverage (DFL) using EBIT of $80,000 as a base.

The Plastic Corporation has a current capital structure consisting of $400,000 of 10% debt and 3,000 shares of common stock. The tax rate is 40%. Determine the earnings per share (EPS) when EBIT is $80,000 and $120,000. Calculate the degree of financial leverage (DFL) using EBIT of $80,000 as a base.

EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter13: Capital Structure Concepts
Section: Chapter Questions
Problem 7P
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  1. The Plastic Corporation has a current capital structure consisting of $400,000 of 10% debt and 3,000 shares of common stock. The tax rate is 40%.

    1. Determine the earnings per share (EPS) when EBIT is $80,000 and $120,000.

    2. Calculate the degree of financial leverage (DFL) using EBIT of $80,000 as a base.

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