It is December 31. Last year, Campbell Construction had sales of $160,000,000, and it forecasts that…

It is December 31. Last year, Campbell Construction had sales of $160,000,000, and it forecasts that next year’s sales will be $144,000,000. Its fixed costs have been-and are expected to continue to be-$80,000,000, and its variable cost ratio is 21.00%. Campbell’s capital structure consists of a $15 million bank loan, on which it pays an interest rate of 8%, and 750,000 shares of common equity. The company’s profits are taxed at a marginal rate of 40%. Given this data, complete the following sentences: Note: For these computations, round each EPS to two decimal places. • The company’s percentage change in EBIT is • The percentage change in Campbell’s earnings per share (EPS) is_ • The degree of financial leverage (DFL) at $144,000,000 is The following are the two principal equations that can be used to calculate a firm’s DFL value: v Percentage Change in EPS DFL (at EBIT = $X) = Percentage Change in EBIT DFL (at EBIT = $x) = – EBIT EBIT-Interest – Preferred Dividend’s podends Tax Rate) Consider the following statement about DFL, and indicate whether or not it is correct.

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