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CMA Intermediate · Financial Management and Business Data Analytics · Leverage Analyses and EBIT - EPS Analysis

Rathi Engineering Ltd has a DCL of 3.0. Its sales are expected to rise by 12%, and the current EPS is ₹20. Assuming the cost structure and leverage remain unchanged, what will be the new EPS?

With DCL of 3.0, a 12% rise in sales raises EPS by 36%. Applying 36% to the current EPS of ₹20 gives a new EPS of ₹27.20.

  1. A₹23.60
  2. B₹27.20Correct
  3. C₹32.00
  4. D₹24.00

Explanation

EPS change = DCL x sales change = 3.0 x 12% = 36%. New EPS = 20 x 1.36 = ₹27.20. Adding only 12% gives ₹22.40, and 20 + 36 treated as rupees would be wrong; ₹32.00 mistakenly uses a 60% rise.

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