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FINANCIAL MANAGEMENT WORKSHEET FOR CHAPTER: LEVERAGES Q1.

The following statement is available for an output level of 60,000 units: Sales: 9,60,000 (-)Variable cost 5,60,000 Contribution 4,00,000 (-)Fixed cost 2,40,000 EBIT 1,60,000 (-)Interest 60,000 EBT 1,00,000 (-)Tax 50,000 EAT 50,000 Calculate operating leverage, financial leverage & combined leverage. Q2. (TY BMS April 2012) Calculate degree of operating leverage, degree of financial leverage & combined leverage: Sales: 1,00,000 units Selling price: Rs.2 per unit Variable cost: Rs.0.7 per unit Fixed cost: Rs.1,00,000 per unit Interest: Rs.3668 Which combinations of operating & financial leverage constitute risk situation and ideal situation? Q3. (TY BMS Nov 2010) The following projections are related to company A; Calculate operating leverage, financial leverage & combined leverage: Sales (units): 80,000 Variable cost: Rs.4 per unit Fixed cost: Rs.2,40,000 Selling price per unit: Rs.10 Q4. (TY BMS Nov 2002) The following is the data for companies A, B & C for the year ended 31st March 2012 Particulars A Ltd B Ltd C Ltd Variable cost (%sales) 66 2/3 75 50 Interest (Rs) 200 300 1,000 Degree of operating leverage 5 6 2 Degree of financial leverage 3 4 2 Income tax rate (%) 40 40 40 Prepare income statement for each of the three companies

Q5. A firm has sales of Rs.75,00,000; Variable cost of Rs.42,00,000 and fixed costs of Rs.6,00,000. It has a debt of Rs.45,00,000 @ 9% and equity of Rs.55,00,000 a) What is the firms ROI? b) Does it have a favourable financial leverage? c) If the firm belong to an industry whose asset turnover is 3, does it have high or low asset leverage? d) What are the operating, financial & combined leverages of the firm? e) If the sales drop to Rs.50,00,000 what will be the new EBIT? Q6. The following information is available for 4 firms. Calculate EBIT, EPS, operating leverage & financial leverage. Particulars P Q R S Sales (units) 20,000 25,000 30,000 40,000 Selling price per unit 15 20 25 30 Variable cost per unit 10 15 20 25 Fixed cost (Rs) 30,000 40,000 50,000 60,000 Interest (Rs) 15,000 25,000 35,000 40,000 Tax (%) 40 40 40 40 No of equity shares 5,000 9,000 10,000 12,000

Q7. (TY BMS Nov 2011) From the following particulars, prepare income statement of A Ltd & B Ltd: Particulars A Ltd Degree of combined leverage 6 times Degree of operating leverage 3 times Variable cost (as % sales) 40% Income tax 35% No of equity shares 1,00,000 EPS 1.30

B Ltd 15 times 5 times 50% 35% 1,00,000 0.65