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    CH10 Long Term Decision Payongayong-2

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    Nadi Hood
    1. The document discusses contribution margin, degree of financial leverage, and degree of combined leverage for a company. 2. It also presents two alternatives for issuing new shares or debt and calculates the total number of shares and interest obligations for each. 3. Finally, it shows the calculation to determine the indifference level of EBIT between the two financing alternatives.

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    CH10 Long Term Decision Payongayong-2

    Uploaded by

    Nadi Hood
    542 views1 page
    1. The document discusses contribution margin, degree of financial leverage, and degree of combined leverage for a company. 2. It also presents two alternatives for issuing new shares or debt and calculates the total number of shares and interest obligations for each. 3. Finally, it shows the calculation to determine the indifference level of EBIT between the two financing alternatives.

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    1. The document discusses contribution margin, degree of financial leverage, and degree of combined leverage for a company. 2. It also presents two alternatives for issuing new shares or debt and calculates the total number of shares and interest obligations for each. 3. Finally, it shows the calculation to determine the indifference level of EBIT between the two financing alternatives.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    542 views1 page

    CH10 Long Term Decision Payongayong-2

    Uploaded by

    Nadi Hood
    1. The document discusses contribution margin, degree of financial leverage, and degree of combined leverage for a company. 2. It also presents two alternatives for issuing new shares or debt and calculates the total number of shares and interest obligations for each. 3. Finally, it shows the calculation to determine the indifference level of EBIT between the two financing alternatives.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 1

    3.

    A
    Contribution Margin Selling Price per Unit-Variable Cost per Unit
    16-11
    ₱ 5.00

    4. D
    Degree of Financial
    Leverage EBIT/EBIT-Interest
    200/(200-50)
    1.33
    5. B
    Degree of Combined Quantity*(SP-VC)/Quantity*(SP-VC)-Fixed Cost-
    Leverage Interest
    200,000*(16-11)/200,000*(16-11)-800,000-50,000
    1,000,000/150,000
    6.67

    6. C
    Php 800,000/40 per
    Alternative I: share
    20,000
    20,000 + 40,000
    Total Shares 60,000
    Alternative II: no new issued shares
    Total Shares 40,000

    7. B
    90,000(face value) * 10%
    Alternative I: (outstanding debt)
    total interest obligation 9,000
    800,000 shares * 12% (coupon
    Alternative II: rate)
    Total Shares 96,000
    add: total interest
    obligation 9,000
    105,000
    8. D
    Indifference Level of EBIT (EBITe - Ie)*(1-T)/Se = (EBITd - Id)*(1-T)/Sd
    (EBITe - Ie)/Se = (EBITd - Id)/Sd
    (EBIT - P9,000)/ 60,000 = (EBIT - P105,000)/
    40,000
    (EBIT - P9,000)]/6 = (EBIT - P105,000)/4
    4*(EBIT - P9,000) = 6*(EBIT - P105,000)

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