Question

# ACME, Inc. reported the following income statement for 2009: Sales \$2,500,000 Variable Costs 900,000 Fixed Operating...

ACME, Inc. reported the following income statement for 2009:

 Sales \$2,500,000 Variable Costs 900,000 Fixed Operating Costs 700,000 EBIT 900,000 Interest Expense 200,000 EBT 700,000 Taxes (30%) 210,000 Net Income \$490,000 Earnings Per Share \$4.90

If ACME's sales next year increase by 20%, what will ACME's earnings per share be?

show work so i can understand how you got each answer

Variable Cost Ratio

Variable Cost Ratio = [Total Variable Costs / Sales] x 100

= [\$900,000 / \$25,00,000] x 100

= 36%

Number of shares outstanding

Number of shares outstanding = Net Income / Earnings per share

= \$490,000 / \$4.90 per share

= 100,000 Common Shares Outstanding

Income Statement for calculating the Earnings per share if the sales increased by 20%

 Sales [\$25,00,000 x 120%] \$30,00,000 Variable Costs [\$30,00,000 x 36%] 10,80,000 Fixed Operating Costs 700,000 EBIT 12,20,000 Interest Expense 200,000 EBT 10,20,000 Taxes (30%) 306,000 Net Income 714,000 Earnings Per Share [\$714,000 / 100,000 Shares] \$7.14 per share

“Therefore, ACME's earnings per share will be \$7.14 per share”

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