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  • Class Assignment - Leverage

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    hima001
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    OPERATING LEVERAGE A PRICE VARIABLE cost fixed COSTS CAP EMPLOYED tax BEP BEP(UNITS) PLANT A SALES REVENUE TOTAL COST FINANCIAL LEVERAGE ebit less interest Equity Capital 20000 nil 25000nil Eat Less tax PAT Ebit less int Eat Less tax Pat No of Shareholders Eps DFL COMBINED LEVERAGE Because of fixed cost, DC

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    OPERATING LEVERAGE A PRICE VARIABLE cost fixed COSTS CAP EMPLOYED tax BEP BEP(UNITS) PLANT A SALES REVENUE TOTAL COST FINANCIAL LEVERAGE ebit less interest Equity Capital 20000 nil 25000nil Eat Less tax PAT Ebit less int Eat Less tax Pat No of Shareholders Eps DFL COMBINED LEVERAGE Because of fixed cost, DC

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    28 views7 pages

    Class Assignment - Leverage

    Uploaded by

    hima001
    OPERATING LEVERAGE A PRICE VARIABLE cost fixed COSTS CAP EMPLOYED tax BEP BEP(UNITS) PLANT A SALES REVENUE TOTAL COST FINANCIAL LEVERAGE ebit less interest Equity Capital 20000 nil 25000nil Eat Less tax PAT Ebit less int Eat Less tax Pat No of Shareholders Eps DFL COMBINED LEVERAGE Because of fixed cost, DC

    Copyright:

    Attribution Non-Commercial (BY-NC)
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    of 7

    OPERATING LEVERAGE

    A B SALES

    1000
    PRICE 5 5 2000
    VARIABLE COST 3 2 5000
    FIXED COSTS 20000 60000 10000
    CAP EMPLOYED 300000 300000 20000
    TAX 0.35 0.35 30000
    40000
    BEP 20000/(5-3) 60000/(5-2) 60000
    BEP(UNITS) 10000 20000 80000

    FOR PLANT A

    SALES REVENUE VARIABLE COST FIXED COST TOTAL COST


    1000 5000 3000 20000 23000
    2000 10000 6000 20000 26000
    5000 25000 15000 20000 35000
    10000 50000 30000 20000 50000
    20000 100000 60000 20000 80000
    30000 150000 90000 20000 110000
    40000 200000 120000 20000 140000
    60000 300000 180000 20000 200000
    80000 400000 240000 20000 260000

    FOR PLANT B

    SALES REVENUE VARIABLE COST FIXED COST TOTAL COST


    1000 5000 2000 60000 62000
    2000 10000 4000 60000 64000
    5000 25000 10000 60000 70000
    10000 50000 20000 60000 80000
    20000 100000 40000 60000 100000
    30000 150000 60000 60000 120000
    40000 200000 80000 60000 140000
    60000 300000 120000 60000 180000
    80000 400000 160000 60000 220000
    PLANT A
    SALES REVENUE TOTAL COST
    1000 5000 23000
    2000 10000 26000
    5000 25000 35000
    10000 50000 50000
    20000 100000 80000
    30000 150000 110000
    40000 200000 140000
    60000 300000 200000
    80000 400000 260000

    450000

    400000

    350000

    300000

    250000
    REVENUE
    200000 TOTAL COST
    150000

    100000

    50000

    0
    0 100002000030000400005000060000700008000090000

    FINANCIAL LEVERAGE

    10% Debs 81000 Equity Capital


    Ebit 20000
    Tax 35%
    O/s Shares 990 @ 100 each
    ebit 20000 25000
    less interest nil nil
    Eat 20000 25000
    Less tax 7000 8750
    PAT 13000 16250

    Ebit 20000 25000


    less int 8100 nil
    Eat 11900 25000
    less tax 4165 8750
    Pat 7735 16250
    No of Shareholders 990 1800
    Eps 7.813131313131 9.02777777777778
    DFL 1.680672268908 1

    COMBINED LEVERAGE
    Because of fixed cost, DCL is more

    Cap Emp 800000


    equity 480000
    debt 320000
    No of shareholders 4800

    inc by 25%
    Sales 200000 225000
    Sp/unit 10
    Vc/unit 5
    Rv 2000000 2500000
    Vc 1000000 1250000
    Fc 500000 500000

    Ebit 500000 750000


    less int 32000 32000
    Ebt 468000 718000
    tax @35% 163800 251300
    Pat 304200 466700

    Eps 63.38 97.2291666666667

    DOL 2
    DFL 1.07
    DCL 2.14
    LEVERAGE

    EBIT TAX EAT ROI


    -18000 -6300 -11700 -0.039
    -16000 -5600 -10400 -0.03466666667
    -10000 -3500 -6500 -0.02166666667
    0 0 0 0
    20000 7000 13000 0.04333333333
    40000 14000 26000 0.08666666667
    60000 21000 39000 0.13
    100000 35000 65000 0.21666666667
    140000 49000 91000 0.30333333333

    EBIT TAX EAT ROI


    -57000 -19950 -37050 -0.1235
    -54000 -18900 -35100 -0.117
    -45000 -15750 -29250 -0.0975
    -30000 -10500 -19500 -0.065
    0 0 0 0
    30000 10500 19500 0.065
    60000 21000 39000 0.13
    120000 42000 78000 0.26
    180000 63000 117000 0.39
    SALES REVENUE TOTAL COST
    1000 5000 62000
    2000 10000 64000
    5000 25000 70000
    10000 50000 80000
    20000 100000 100000
    30000 150000 120000
    40000 200000 140000
    60000 300000 180000
    80000 400000 220000

    450000

    400000

    350000

    300000

    250000
    REVENUE
    200000 TOTAL COST
    150000

    100000

    50000

    AL LEVERAGE

    180000 cap employed


    15000
    nil
    15000
    5250
    9750

    15000
    nil
    15000
    5250
    9750
    990
    9.84848484848485
    1

    NED LEVERAGE
    ost, DCL is more eg: Dol 6, Dfl 1.25
    DCL = DOL*DFL = 7.5

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