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Hello, PLS CAN YOU HELP ME in finding some practice questions with solutions on leverages & EPS

Hello, PLS CAN YOU HELP ME in finding some practice questions with solutions on leverages & EPS


 

Grade:

1 Answers

Vasanth SR
askIITians Faculty 1328 Points
4 years ago
Calculate the Degree of Operating Leverage (DOL), Degree of Financial leverage (DFL) and the Degree of Combined Leverage (DCL) for the following firms and interpret the results.

Firm A Firm B Firm C

Output (units) 60,000 15,000 1,00,000

Fixed Costs (Rs) 7,000 14,000 1,500

Variable cost per unit (Rs.) 0.20 1.50 0.02

Interest on borrowed funds 4,000 8,000 -----

Selling price per unit (Rs) 0.60 5.00 0.10

Solution:

Firm A Firm B Firm C

Output (units) 60,000 15,000 1,00,000

Selling price per unit (Rs) 0.60 5.00 0.10

Variable cost per unit (Rs.)0.201.500.02

Contribution per unit0.403.500.08

Total Contribution Rs.24,000 Rs.52,500 RS.8,000

Less fixed costs 7,000 14,000 1,500

EBIT 17,000 38,500 6,500

Less Interest4,0008,000---

Profit before Tax13,00030,5006,500

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