Illinois Tool Company's (ITC)degree of total leverage (DTL)is 3.00 at a sales volume of $9 million. Determine ITC's percentage change in earnings per share (EPS)if forecasted sales increase by 20 percent to $10,800,000.
A)60%
B)50%
C)32%
D)None of the above

Question

Quizplus · Accepted Answer

The degree of total leverage (DTL) is used to measure the sensitivity of the company's earnings per share (EPS) to a change in sales. The formula for calculating the percentage change in EPS given a percentage change in sales is: Percentage Change in EPS = DTL × Percentage Change in Sales. Given that the DTL is 3.00 and the forecasted sales increase is 20 percent, the calculation would be: Percentage Change in EPS = 3.00 × 20% = 60%.

Illinois Tool Company's (ITC)degree of Total Leverage (DTL)is 3