The Quick Company expects its sales to increase by 50% in the coming year.The firm's current EPS is $1.75.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? Do not round intermediate calculations.
A) $4.69
B) $4.50
C) $3.99
D) $4.36
E) $5.53

Question

Quizplus · Accepted Answer

The DTL approach formula is:Projected EPS = Current EPS * (1 + (Degree of Operating Leverage * % Change in Sales)) / (1 + (Degree of Financial Leverage * % Change in Sales))Projected EPS = $1.75 * (1 + (1.6 * 50%)) / (1 + (2.1 * 50%))Projected EPS = $1.75 * (1 + 0.8) / (1 + 1.05)Projected EPS = $1.75 * 1.8 / 2.05Projected EPS = $4.69

The Quick Company Expects Its Sales to Increase by 50