tut 12 financial and operating leverage
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Financial ManangementTRANSCRIPT
TUTORIAL 12 OPERATING AND FINANCIAL LEVERAGE
1. Two firms A and B have the following information
Particulars Company A Company BCapital 6,00,000 3,50,000Debentures 4,00,000 6,50,000Output (units) p.a. 60,000 15,000Selling price per unit 30 250Fixed cost per annum 7,00,000 14,00,000Variable cost per unit 10 75
You are required to calculate the operating leverage, financial leverage, combined leverage of two companies, if interest rate is 12%.
2. Consider the following information per for Kaunark Enterprise
Rs in lakhEBIT 1120PBT 320Fixed Cost 700
Calculate percentage change in EPS if sales increased by 5 percent
3. Arun Chemicals Ltd. Is considering is expansion of its plant capacity to meet the growing demand. The company would finance the expansion either with 15% debentures or issue of 10 lakh shares at a price of Rs 16 per share. The funds requirement is Rs 160 lakh. The company’s profit and loss statement before expansion is as follows
Rs in lakhSales 1500Less: costs 1050EBIT 450Less: Interest 50PBT 400Less: Taxes at 51.75% 207PAT 193Number of Shares (lakh) 50EPS (Rs) 3.86
The company’s expected EBIT with associated probabilities after expansion is as follows:
EBIT (Rs in lakh) Probability250 .10450 .30
540 .50600 .10
You are required to calculate the company’s expected EBIT and EPS and standard deviation of EPS and EBIT of each plant.
TUTORIAL 12 –OPERATING AND FINANCIAL LEVERAGE
1. Two firms A and B have the following information
Particulars Company A Company BCapital 6,00,000 3,50,000Debentures 4,00,000 6,50,000Output (units) p.a. 60,000 15,000Selling price per unit 30 250Fixed cost per annum 7,00,000 14,00,000Variable cost per unit 10 75
You are required to calculate the operating leverage, financial leverage, combined leverage of two companies, if interest rate is 12%.
2. Consider the following information per for Kaunark Enterprise
Rs in lakhEBIT 1120PBT 320Fixed Cost 700
Calculate percentage change in EPS if sales increased by 5 percent
3. Arun Chemicals Ltd. Is considering is expansion of its plant capacity to meet the growing demand. The company would finance the expansion either with 15% debentures or issue of 10 lakh shares at a price of Rs 16 per share. The funds requirement is Rs 160 lakh. The company’s profit and loss statement before expansion is as follows
Rs in lakhSales 1500Less: costs 1050EBIT 450Less: Interest 50PBT 400Less: Taxes at 51.75% 207PAT 193Number of Shares (lakh) 50EPS (Rs) 3.86
The company’s expected EBIT with associated probabilities after expansion is as follows:
EBIT (Rs in lakh) Probability250 .10450 .30
540 .50600 .10
You are required to calculate the company’s expected EBIT and EPS and standard deviation of EPS and EBIT of each plant.