Victoria Inc. (VI) Has a total degree of leverage of 5 (DTL=DOL*DFL=5), if sales is expected...
Victoria Inc. (VI) Has a total degree of leverage of 5 (DTL=DOL*DFL=5), if sales is expected to increase by 4 percent for VI, what is your best estimate for EPS of VI?
Homework Answers
HI,
Degree of total leverage is a sensitivity element which calculates change in % of EPS with percentage change of Sales.
Here DTL (Degree of total leverage) = 5
% change in Sales = 4%
% change of EPS =?
DTL = % change in EPS/% change in Sales
5 = % change in EPS /4%
% change in EPS = 5*4% = 20%
Hence EPS will increase by 20%
Thanks
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