Ajman Foods Inc. sells 40-pound bags of grapes to the military for $16 a bag. The fixed costs of this operation are $73,235, while the variable costs of grapes are $0.10 per pound. If Ajman Foods has an annual interest expense of $11,000, calculate the degree of financial leverage at 17,718 bags.

The degree of financial leverage is a ratio that helps measure the impact of a company's financing costs on its earnings per share (EPS). At 17718 bags, the degree of financial leverage is 55.82. This means that for every 1% change in EBIT, the EPS will change by 55.82%.

To calculate the percentage change in EPS, use the following formula:Percentage change in EPS = (new EPS - old EPS) / old EPS x 100To calculate the percentage change in EBIT, use the following formula:Percentage change in EBIT = (new EBIT - old EBIT) / old EBIT x 100 Given Ajman Foods Inc. sells 40-pound bags of grapes to the military for $16 a bag.

The fixed costs of this operation are $73235, while the variable costs of grapes are $0.10 per pound. The company has an annual interest expense of $11,000.At 17718 bags, the total revenue generated is 17718 x $16 = $283488.The total variable cost is 17718 x 40 x $0.10 = $70992.

Therefore, the total contribution margin is $212496 ($283488 - $70992).The total fixed cost is $73235. Therefore, the EBIT is $139261 ($212496 - $73235).The interest expense is $11,000. Therefore, the net income before taxes is $128261 ($139261 - $11000).

The old EPS is $128261 / 17718 = $7.24.To find the new EPS, we need to calculate the new net income after taxes. Assuming a tax rate of 40%, the net income after taxes is $76956 ($128261 x 0.6). Therefore, the new EPS is $76956 / 17718 = $4.34.

The percentage change in EPS is: Percentage change in EPS = (new EPS - old EPS) / old EPS x 100= ($4.34 - $7.24) / $7.24 x 100= -40.11%The old EBIT is $212496 - $73235 = $139261.To find the new EBIT, we need to subtract the variable cost from the revenue, which gives us the contribution margin. We can then subtract the fixed cost and interest expense to get the EBIT.At 17718 bags, the total revenue is $283488.

The total variable cost is $70992. Therefore, the contribution margin is $212496 ($283488 - $70992). The fixed cost is $73235, and the interest expense is $11,000. Therefore, the new EBIT is $138261 ($212496 - $73235 - $11000).The percentage change in EBIT is:Percentage change in EBIT = (new EBIT - old EBIT) / old EBIT x 100= ($138261 - $139261) / $139261 x 100= -0.72%

Therefore, the degree of financial leverage at 17718 bags is:DFL = (percentage change in EPS) / (percentage change in EBIT)= (-40.11%) / (-0.72%)= 55.82

Know more about variable cost here:

https://brainly.com/question/31811001

#SPJ11