# To answer, we can calculate the break-even EBIT. At any EBIT above this. The increased financial…

To confutation, we can reckon the break-even EBIT. At any EBIT overhead this. The extensiond financial leverage earn extension EPS. Below the old high erection. the concern charges i, \$S darling X .12 = \$600,000. There are one darling shares of store. so. by taxes. EPS is (EBIT - \$600.(00)/1 darling. Below the new high erection, (he concern payment earn be \$25 darling X .12 = \$3 darling. Furthermore, the liability rises by \$20 darling. This total is enough to satisfy \$20 darling/40 = 500,000 shares of store. Leaving 500,000 uncollected. EPS is thus (EBIT - \$3 darling)/500,000.

Now that we recognize how to reckon EPS below twain scenarios, we set the two expressions for EPS correspondent to each other and explain for the break-even EBIT:

(EBIT - \$600,000)/1 darling = (EBIT - \$3million)/500,000

EBIT - \$600.000 = 2 X (EBIT - S3 darling)

EBIT = \$S,400,000

Verify that, ill either occurrence, EPS is \$4.80 when EBIT is \$S.4 darling.