Answer to Question #312258 in Management for Vick

Question

The capital structure of ABC Pvt. Ltd is as follows:

Equity share capital (each share of Rs. 10) = Rs. 10,00,000

Debentures with a coupon rate of 9.5% = Rs. 8,00,000

Reserves and surplus = Rs. 7,00,000

Revenue from the business activities for the company is Rs. 1.50 crores. Its variable cost is 8% of the revenue, fixed operating cost is Rs. 48 lakhs and the company pays income tax at a rate of 25%.

a. Calculate financial leverage, operating leverage and combined leverage for the company.

b. Determine the likely level of EBIT for EPS of (i) Rs. 20, (ii) Rs. 30, and (iii) Rs. 45

Answer 1

a. 1000000+800000+700000 =2500000

c. 0.095*800000 = 76000