Quick Launch Rocket Company, a satellite launching firm, expects its sales to increase by 50 percent in the coming year as a result of NASA's recent problems with the space shuttle.The firm's current EPS is R3.25.Its degree of operating leverage is 1.6, while its degree of financial leverage is 2.1.What is the firm's projected EPS for the coming year using the DTL approach?

Question

Quizplus · Accepted Answer

Using the DTL (degree of total leverage) approach:
DTL = DOL x DFL
DTL = 1.6 x 2.1
DTL = 3.36

Percentage increase in sales = 50%
Projected percentage increase in EPS = 3.36 x 50% = 168%

Projected EPS = Current EPS + (Current EPS x Projected % increase in EPS)
Projected EPS = 3.25 + (3.25 x 1.68)
Projected EPS = R8.71

Quick Launch Rocket Company, a Satellite Launching Firm, Expects Its