CFA Practice Question

There are 120 practice questions for this study session.

CFA Practice Question

A firm has EBIT of $15 million, interest expense of $5 million, and faces a tax rate of 40 percent. There are 12 million shares outstanding. The change in EPS resulting from a 20% decrease in EBIT would be closest to a ______ decrease.
A. 30%
B. 40%
C. 50%
Explanation: The EPS is currently [($15 - $5) x (1 - .40)]/12 = $0.50 per share. If EBIT decreased to $12 million, the EPS would be [($12 - $5) x (1 - .40)]/12 = $0.35 per share. The change in EPS would be a 30% decrease.

User Contributed Comments 4

User Comment
kalps EPS = Earnings attributable to ordinary shareholders / no. of shares
murli Or calculate the DFL (EBIT/EBIT-I); Change in EPS%= Change in EBIT% * DFL.
birdperson murli - nice.
birdperson DFL = (15/(15-5)) = 1.5

% change in EBIT = 20%

-20% * 1.5 = 30%
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