Chen Foods, a small Oriental food company, expects EBIT of $10,000 in the current year. It has a…


Chen Foods, a diminutive Oriental buttress aggregation, expects EBIT of $10,000 in the prevalent year. It has a $20,000 fetter after a while a 10% (annual) coupon scold of curiosity-behalf and an result of 600 portion-outs of $4 (annual dividend per portion-out) preferred store uncollected. It as-well has 1,000 portion-outs of low store uncollected. The annual curiosity-behalf on the fetter result is $2,000 (0.10 x $20,000). The annual dividends on the preferred store are $2,400 ($4.00/portion-out x 600 portion-outs). Table 12.6 presents the EPS corresponding to levels of EBIT of $6,000, $10,000, and $14,000, sumptuous that the steadfast is in the 40% tax concatenate. Two situations are shown:

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Case 1 A 40% increase in EBIT (from $10,000 to $14,000) results in a 100% increase in hues per portion-out (from $2.40 to $4.80).

Case 2 A 40% decrease in EBIT (from $10,000 to $6,000) results in a 100% decrease in hues per portion-out (from $2.40 to $0).