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    This document contains 11 problems related to calculating and interpreting operating leverage, financial leverage, and combined leverage from financial statements and capital structure information. It provides data on sales, variable costs, fixed costs, debt, interest expenses, production levels, prices, tax rates, and capital structures. Managers must calculate the different leverage metrics and analyze how they impact risk and the company's performance under different scenarios. The calculations help financial managers understand the risk-return tradeoff from operational and financing decisions.

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    Vip

    Uploaded by

    Vipin Kushwaha
    114 views6 pages
    This document contains 11 problems related to calculating and interpreting operating leverage, financial leverage, and combined leverage from financial statements and capital structure information. It provides data on sales, variable costs, fixed costs, debt, interest expenses, production levels, prices, tax rates, and capital structures. Managers must calculate the different leverage metrics and analyze how they impact risk and the company's performance under different scenarios. The calculations help financial managers understand the risk-return tradeoff from operational and financing decisions.

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    MBA

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    This document contains 11 problems related to calculating and interpreting operating leverage, financial leverage, and combined leverage from financial statements and capital structure information. It provides data on sales, variable costs, fixed costs, debt, interest expenses, production levels, prices, tax rates, and capital structures. Managers must calculate the different leverage metrics and analyze how they impact risk and the company's performance under different scenarios. The calculations help financial managers understand the risk-return tradeoff from operational and financing decisions.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    114 views6 pages

    Vip

    Uploaded by

    Vipin Kushwaha
    This document contains 11 problems related to calculating and interpreting operating leverage, financial leverage, and combined leverage from financial statements and capital structure information. It provides data on sales, variable costs, fixed costs, debt, interest expenses, production levels, prices, tax rates, and capital structures. Managers must calculate the different leverage metrics and analyze how they impact risk and the company's performance under different scenarios. The calculations help financial managers understand the risk-return tradeoff from operational and financing decisions.

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    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 6

    Chapter :- Leverages

    Problem:1

    1. Find the operating leverage from the following data Sales Rs. 50,000 Variable Cost 60% Fixed Cost Rs. 12000 2. Find the financial leverage from the following data Net Worth Rs. 25,00,000 Debt/Equity 3/1 Interest Rate 12% Operating Profit Rs. 20,00,000

    Problem: 2
    Calculate the degree of operating leverage, degree of financial leverage and degree of combined leverage for the following firms and interpret the results:

    Firm Output (Units) Fixed Cost (Rs.) Variable cost per unit (Rs.) Interest on borrowed capital (Rs.) Selling price per unit (Rs.)

    A 60,000 7,200 0.2 4,000 0.6

    B 15,000 14,000 1.5 8,000 5

    C 1,00,000 1,500 0.02 0.1

    Success Academy MBA Finance Classes : 9011202759

    By- Versatile Group

    Problem: 3
    (a) Calculate degree of operating leverage, financial leverage & combined leverage from the following data: Sales 1, 00,000 units @ Rs. 2 per unit is Rs. 2,00,000 Variable cost per unit @ Re. 0.70 Fixed Cost: Rs.1,00,000 Interest charges Rs. 3,668 (b) Which combinations of operating & financial leverage constitute: Risky situation Ideal situation

    Problem: 4
    The operating information of Suresh Enterprises are as follows:Rs. 30,00,000 21,00,000 *6,00,000 (* Including 15% interest on Rs. 15,00,000)

    Sales Variable cost Fixed cost

    1. 2.

    Calculate the operating, financial and combined leverage. Determine the additional sales to double its EBIT.

    Success Academy MBA Finance Classes : 9011202759

    By- Versatile Group

    Problem: 5
    Calculate operating, financial & combined leverage under Financial Plan X & Y when the fixed cost are Rs. 50,000 & Rs. 1,00,000 in two different situations. The information regarding capital structure and data are as follows: Rs. 5,00,000 2 60

    Total assets total assets turnover based on sales Varible cost as % of sales

    Equity 10% debenture

    Financial Plan (Rs.) X Y 5,00,000 1,00,000 1,00,000 5,00,000

    Success Academy MBA Finance Classes : 9011202759

    By- Versatile Group

    Problem: 6
    Calculate operating & financial leverage under situations 1 & 2 and financial plan A & B respectively from the following formation relating to the operating and capital structure of a company. What are the combinations of operating and financial leverage which give highest and the least value?

    Installed capacity Actual production and sales selling price per unit variable cost per unit

    2000 units 50% of installed capacity Rs. 20 Rs. 10

    Capital structure :Financial Plan (Rs.) X Y 5,000 15,000 15,000 5,000

    Equity 10% debenture

    Problem: 7
    ABC Ltd has an average selling price of Rs. 150 per unit. Its variable unit cost is Rs.105 & fixed cost amount to Rs. 25 lakhs. It finances all its assets by an equity funds. It pays 35% tax on its income. XYZ Ltd. is identical to ABC Ltd., except it respect of the pattern of financing. The latter finance its assets 50% by equity and 50% by debt, the interest on which amount of Rs.3,00,000. Determine the degree of operating, financial and combined leverages @ Rs. 1,00,00,000 sales for both the firms.

    Success Academy MBA Finance Classes : 9011202759

    By- Versatile Group

    Problem: 8
    From the following information of the companies M & N, prepare their income statement: Company M Variable costs as % of sales Interest loss Degree of Operating leverage Degree of Financial leverage Income tax rate 75 Rs. 2,00,000 3-1 2-1 35% N 70 Rs. 6,00,000 5-1 3-1 35%

    Problem: 9
    Calculate the operating, finance & combined leverage from the following data under Situation I & II and financial plan A and B Installed capacity Actual production and sales selling price per unit variable cost per unit Fixed Cost Under situation I Under situation II 4000 units 75% of installed capacity Rs. 30 per unit Rs. 15 per unit Rs. 15,000 Rs. 20,000

    Capital structure Financial Plan (Rs.) A B 10,000 15,000 10,000 5,000

    Equity 20% debt

    Success Academy MBA Finance Classes : 9011202759

    By- Versatile Group

    Problem: 10
    From the following prepare income statement of Company A,B & C. Briefly comment on each companys performance. Particular Variable costs as % of sales Interest Rs. Degree of Operating leverage Degree of Financial leverage Income tax rate A 66 2/3 % Rs. 200 5-1 3-1 45% B 75 % Rs. 300 6-1 4-1 45% C 50 % 1000 2-1 2-1 45%

    Problem: 11
    Calculate the operating & financial leverage under situation A, B and C and financial plans I,II & III respectively from the following information relating to the operating and capital structure of XYZ co. and find out the combination of operating and financial leverage which give the highest value and the least value. How are these calculations useful to financial manager in a company? Installed capacity Actual production and sales selling price per unit variable cost per unit Fixed Cost Under situation A Under situation B Under situation C 1200 units 800 units Rs. 15 per unit Rs. 10 per unit Rs. 1,000 Rs. 2,000 Rs. 3,000

    Capital Structure : Financial Plan (Rs.) I II III 5,000 7,500 2,500 5,000 2,500 7,500

    Equity 20% debt Cost of debt 12%

    Success Academy MBA Finance Classes : 9011202759

    By- Versatile Group

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