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 $3.25.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?
A)$3.25
B)$5.46
C)$10.92
D)$8.71
E)$19.63

Question

Quizplus · Accepted Answer

The DTL approach formula is:

Projected EPS = Current EPS + (Current EPS x Degree of Operating Leverage x Percentage Change in Sales) / (1 + (Current EPS x Degree of Financial Leverage))

We are given:
- Current EPS = $3.25
- Degree of Operating Leverage = 1.6
- Degree of Financial Leverage = 2.1
- Percentage Change in Sales = 50% = 0.5

Plugging these values into the formula, we get:

Projected EPS = $3.25 + ($3.25 x 1.6 x 0.5) / (1 + ($3.25 x 2.1))
Projected EPS = $8.71

Therefore, the best choice is D.

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