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    Financial Leverage Questions

    Uploaded by

    jeganrajraj
    This document contains 8 questions regarding financial leverage concepts such as operating leverage, financial leverage, and combined leverage. The questions provide numerical data on sales, costs, production levels, capital structure, and ask to calculate the various leverage ratios. Formulas for leverage involve dividing contributions by earnings to determine how changes in activity affect profits.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd

    Financial Leverage Questions

    Uploaded by

    jeganrajraj
    6K views2 pages
    This document contains 8 questions regarding financial leverage concepts such as operating leverage, financial leverage, and combined leverage. The questions provide numerical data on sales, costs, production levels, capital structure, and ask to calculate the various leverage ratios. Formulas for leverage involve dividing contributions by earnings to determine how changes in activity affect profits.

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    Financial Leverage Questions

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    This document contains 8 questions regarding financial leverage concepts such as operating leverage, financial leverage, and combined leverage. The questions provide numerical data on sales, costs, production levels, capital structure, and ask to calculate the various leverage ratios. Formulas for leverage involve dividing contributions by earnings to determine how changes in activity affect profits.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    6K views2 pages

    Financial Leverage Questions

    Uploaded by

    jeganrajraj
    This document contains 8 questions regarding financial leverage concepts such as operating leverage, financial leverage, and combined leverage. The questions provide numerical data on sales, costs, production levels, capital structure, and ask to calculate the various leverage ratios. Formulas for leverage involve dividing contributions by earnings to determine how changes in activity affect profits.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 2

    Financial Leverage Questions

    s. Month
    Question
    No & Year
    Determine the operating leverage according to the data given
    April
    1 Sales - 100, Variable Cost - 40, Fixed Cost - 32.5, EBIT - 27.5, Interest - 7.5 and
    2018
    Profit Before Tax - 20.
    Calculate leverages from the following
    Rs
    Production (units) 75,000
    Fixed expenses 7,00,000
    Variable cost (1 unit) 7.50
    Interest expenses Rs. 40,000
    Selling price(1 unit) 25.00

    Calculate the operating leverages, financial leverage and the combined leverage
    for the following firms.
    P Q R
    Output (Units) 3,00,000 75,000 5,00,000
    APRIL Fixed cost (Rs.) 3,50,000 7,00,000 75,000
    2
    2016
    Variable cost per unit
    1 7.50 0.10
    (Rs.)
    40,000 –
    Interest expenses (Rs.) 25,000 -

    Unit selling price (Rs.) 3 25 0.50

    A company has a choice of the following four financial plans. You are required to
    calculate the financial leverage in each case.
    Plan - A Plan - B Plan - C Plan - D
    NOVEM Equity capital 3,000 2,000 1,000 500
    3 BER
    2015 Debt 1,000 2,000 3,000 3,500
    Operating profit 400
    400 400 400
    (EBIT)
    Interest @ 10% on debt in all cases

    Find the financial leverage from the following data :


    Net worth Rs. 25,00,000
    APRIL
    4 Debt equity ratio 3:1
    2014
    Interest rate 12%
    Operating profit Rs. 20,00,000
    Calculate financial leverage and operating leverage under situations A and B and
    financial plan I and II respectively from the following information relating to the
    operation and capital structure of ABC Ltd.
    Installed capacity 1000 units
    Actual production and sales 800 units
    Selling price per unit Rs. 20
    APRIL Variable cost per unit Rs. 15
    5
    2014 Fixed cost : Situation A Rs. 800
    Situation B Rs. 1,500

    Financial plan Financial plan


    Capital structure
    I (Rs) II (Rs)
    Equity capital 5,000 7,000
    Debt at 10% 5,000 2,000

    Compute the operating, financial and combined leverages from the given data :
    NOVE Sales 50,000 units at Rs. 12 per unit
    6 MBER
    Variable cost at Rs. 8 per unit
    2014
    Fixed cost Rs. 90,000 (including 10% interest on Rs. 2,50,000).

    The capital structure of Hindustan Corporation Ltd., consists of equity share


    capital of Rs. 10,00,000 (shares of Rs. 100 each) and Rs. 10,00,000 of 10%
    debentures. Sales have increased from 1,00,000 units to 1,20,000 units, the
    NOVE selling price is Rs. 10 per unit and fixed expenses amount to Rs. 2,00,000. The
    7 MBER income tax rate is assumed to be 50%. You are required to calculate the following
    2014 (a) Percentage increase in earnings per share.
    (b) Operating leverage at 1,00,000 units and 1,20,000 units
    (c) Financial leverage at 1,00,000 units and 1,20,000 units.
    Comment on the risk position of the firm.

    The installed capacity of a factory is 600 units. Actual capacity used is 400 units.
    Selling price per unit is Rs.10. Variable cost is Rs. 6 per unit.
    NOVE Calculate the operating leverage in each of the following situations :
    8 MBER (a) When fixed costs are Rs. 400
    2013 (b) When fixed costs are Rs. 800
    (c) When fixed costs are Rs. 1,000
    (d) When fixed costs are Rs. 1,200

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