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    23com1651 Leverage (1)

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    Tausif tsh

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    23com1651 Leverage (1)

    Uploaded by

    Tausif tsh
    1 views8 pages

    Copyright

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    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    1 views8 pages

    23com1651 Leverage (1)

    Uploaded by

    Tausif tsh

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    of 8

    Q1 find: DOL, DFL, DCL

    Sales (units) 25000


    Interest per annum 30000
    Selling Price per unit 24
    Tax Rate 50%
    Variable Cost 16
    No. of Equity Share 10000
    Fixed Cost per annum 80000

    A1 Sales 600000
    (variable cost) 400000
    Contribution 200000
    (Fixed Cost) 80000
    EBIT 120000
    (Interest) 30000
    EBT 90000
    (TAX) 45000
    EAT 45000

    DOL: 1.67

    DFL: 1.33

    DCL: 2.22
    Q2 From the following information of 3 firms, calculate the EBIT, The
    EPS, the Operating leverage, and the financial leverage.

    Particulars Firm P Firm Q Firm R


    Sales (In Units) 30,000 35,000 40,000
    Selling Price per unit 15 20 25
    Variable Cost per unit 10 15 20
    Fixed Costs 20000 30000 40000
    Interest 30000 25000 35000
    Tax % 30 30 30
    Number of Equity Shares 5000 9000 10000
    Tax Rate 0.3 0.3 0.3

    A2 Firm P Firm Q Firm R


    Sales 450000 700000 1000000
    (variable cost) 300000 525000 800000
    Contribution 150000 175000 200000
    (Fixed Cost) 20000 30000 40000
    EBIT 130000 145000 160000
    (Interest) 30000 25000 35000
    EBT 100000 120000 125000
    (TAX) 30000 36000 37500
    EAT 70000 84000 87500

    Firm P Firm Q Firm R


    DOL 1.153846 1.206897 1.25

    DFL 1.3 1.208333 1.28

    EPS 14 9.333333 8.75


    Q3 The company's total assets turnover ratio is 3, its fixed operating cost is Rs. 1,50,000 and its
    variable operating cost ratio is 50%, the income tax rate is 50%

    You are required to:


    Calculate the different type of leverages for the company and EBIT

    Liabilities Amount Assets Amount


    Equity Capital (10 per sh) 90,000 Fixed Assets 225000
    Retained Earnings 30,000 Current Assets 75000
    10% debt 120,000
    Current Liabilities 60,000
    Total 300,000 Total 300000

    A3
    Total Asset T/O ratio: 3 DOL 1.5
    Sales 900000
    (variable cost) 450000 DFL 1.042
    Contribution 450000
    (Fixed Cost) 150,000 DCL 1.5625
    EBIT 300,000
    (Interest) 12000
    EBT 288,000
    (TAX) 144000
    EAT 144,000
    Q1. PAYBACK PERIOD

    Payback Period = E +( B/C)

    E= Year immididately preceding the recovery


    B= Balance to Recover
    C= Inflows during recovery of final year

    Calculate Payback Period when each inflows are different

    Initial Investment = 3,00,000

    Year Inflow Cumulative Inflow


    1 20,000 20,000
    2 70,000 90,000
    3 60,000 150,000
    4 50,000 200,000
    5 80,000 280,000
    6 30,000 310,000
    7 20,000 330,000

    A1. E: 5
    B: 20,000
    C: 30,000

    Payback Period 5.67 Years


    Q2. Accounting Rate of Return

    Average Annual Profit/Average Investment

    Average Annual Profit: Sum of Profit/Number of Years

    Average Investment: (Initial Investment + Salvage Value)/2

    Machine: Rs. 60,000 Year Profit


    Salvage Value: Rs. 8,000 1 6000
    Life: 5 years 2 7000
    3 5000
    4 6000
    5 8000

    A2.
    Average Profit: 6400
    Average Investment: 34000

    Accounting rate of Return: 18.82%


    Q3. Net Present Value

    Net Present Value = Total Present Value - Initial Investment

    Year X Y
    1 10000 50000
    2 20000 40000
    3 30000 20000
    4 45000 10000
    5 60000 10000
    Outflows -100000 -100000
    Cost of Capital 10%

    A3.
    NPV (X) = ₹ 16,150.16 Since NPV of Project X is higher, it is a
    better alternative
    NPV (Y)= ₹ 6,578.04
    Q4. Profitability Index

    Profitability Index= Sum of PV of Cash Inflow / Sum of PV of Cash Outflow

    Year X Y
    0 100000 100000
    1 10000 70000
    2 30000 60000
    3 35000 45000
    4 60000 10000
    5 75000 10000

    Cost of Capital 10%

    A4.
    PV (X) = ₹ 147,730.22 PI of Project Y > PI of Project X
    PV (Y)= ₹ 160,071.65 Thus Project Y is a better alternative.

    PI(X) 1.48
    PI(Y) 1.60
    Q5. Internal Rate of Return

    PROJECT A PROJECT B PROJECT C


    RATE IF INTEREST 15% 15% 15%
    COST OF PROJECT -600000 -800000 -1000000
    (OUTFLOWS)

    CASH INFLOWS
    YEARS 1 200000 260000 250000
    YEARS 2 200000 290000 340000
    YEARS 3 250000 350000 400000
    YEARS 4 300000 400000 460000
    YEARS 5 350000 450000 550000

    A5.

    IRR= 29% 30% 25%

    IRR of Project B is the greatest. Therefore, it is


    the best alternative to choose.

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