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DEPARTMENT OF MBA
1.XYZ Ltd is an established company which requires more funds of Rs.30,00,000 for its expansion
scheme, apart from the original equity capital of Rs.30,00,000 at Rs.100 per share.
The Director has the following options to raise the additional funds:
iv) Rs.10,00,000 in 12% preference shares and the balance in equity shares
The expected EBIT is Rs.8,00,000 and the tax rate applicable is 50%. Advise the company by analyzing
the options. (June 2013/10MBA23)&(Dec 2012/10MBA23)
2.Calculate operating leverage, financial leverage and combined leverage under situation A and B and
financial plan1 and 2. From the following information relating to XYZ Ltd. (June 2013/10MBA23)
Particulars Amount
Financing plans:
particulars 1 2
liabilities Rs Assets Rs
The company’s total asset turnover ratio is 3, its fixed operating cost is Rs.1,50,000 and its variable
operating cost is 50% of sales. The income tax rate is 50%. You are required to :
i) Calculate the different types of leverages for the company ii) Determine the likely level of EBIT if EPS is
Rs.2 (Dec 2012/10MBA23)
4.The selected financial data for X, Y and Z companies for the year ended March 31 are as follows:
Particulars X Y Z
DOL 5 6 2
DFL 3 4 2
5.Oriental Ltd has currently an ordinary share capital of Rs.25 lakhs, consisting of 25,000 shares of
Rs,100 each. The management is planning to raise another Rs.20 lakhs to finance major expansion
programme, through one of four possible financial plans,
i) Entirely through ordinary shares ii) Rs.10 lakhs through ordinary shares and Rs.10 lakhs in 8% long
term loan iii) Rs.5 lakhs through ordinary shares and Rs.15 lakhs through 9% loan(LT)
iv) Rs.10 lakhs through ordinary shares and Rs.10 lakhs through preference shares with 5% dividend.
The company’s expected earnings before interest and taxes(EBIT) will be Rs.8 lakhs. Assuming a
corporate tax rate of 50%, determine the EPS in each alternative and comment, which alternative is best
and why? (June 2012/10MBA23) &(June200908MBA23)
Company A Company B
You are required to calculate the operating leverage, financial leverage and combined leverage of two
companies. (June 2012/10MBA23)
7.A company has sales of Rs.5,00,000, variable cost of Rs.3,00,000, fixed cost of Rs.1,00,000 and long
term loans of Rs.4,00,000 at 10% rate of interest. Calculate the operating, financial and combined
leverage. (Dec 2011/10MBA23)
Interest 50 100
1. Calculate the operating, financial and combined leverages for the two companies.
Sales 5,00,000 units at Rs.10 per unit; variable cost per unit at Rs.3.50 ; fixed charges Rs.5,00,000;
interest charges Rs.20,000 (Jan 2015/10MBA23
10.The selected financial data of A,B and C companies for the year ended 31-12-2010 are as follows:
Particulars A B C
11.Anand Ltd is in need of Rs.50,00,000 for its expansion programme apart from the original equity
capital of Rs.50,00,000 of Rs.100 each. The directors of the company have the following plan for
expansion:
i) The entire amount of additional capital to be raised through issue of equity shares of Rs.100 each
ii) Rs.20,00,000 in equity shares and balance amount in 10 per cent debentures
The expected EBIT is Rs.15,00,000. The tax rate applicable to the company is 50%. Analyze the options
and select the best option. (Jan 2015/12MBA25)
12.A firm’s sales, variable costs and fixed costs amount to Rs.75,00,000, Rs.42,00,000 and Rs.6,00,000
respectively. It has borrowed Rs.45,00,000 at 9% and its equity capital totals Rs.55,00,000.
i) What is the firm’s ROI? ii) Does it have favourable financial leverage ?
iii) If the firm belongs to an industry whose asset turnover ratio is 3, does it have a high or low asset
leverage?
iv) What are the operating, financial and combined leverages of the firm? (Jan 2015/12MBA25)
13.The following is s the balance sheet of Varun Ltd as on 31-03-2008:
The company’s total assets turnover ratio is 2.5 times. The fixed operating costs are Rs.2,00,000.
Variable cost ratio is 40%. Income tax is 50%. The equity shares are issued at Rs.10 per share. You are
required to: i) Calculate leverages ii) Determine the likely level of EBIT if EPS is Rs.6(Dec 2010/08MBA23)
--------------------
50,00,000
The company earns 12% on its capital. The income-tax rate is 50%. The company requires a sum of
Rs.25 lakh to finance its expansion programme for which the following alternatives are available to it:
Which of the three financing alternatives would you recommend and why? (Dec 2010/08MBA23)
15.Calculate the degree of operating leverage, financial leverage and combined leverages for the
following firms: (Jan.2017/12MBA25)
P Q R
The company’s total assets turnover is 2.5 times. The fixed operating costs are Rs.2 lakhs. Variable
operating cost ratio is 40%. Income tax rate is 50%. Calculate three leverages.
17.A firm has capital structure exclusively comprising of ordinary shares amounting to Rs.10,00,000. The
firm now wishes to raise additional Rs.10,00,000 for expansion. The firm has four alternative plans:
Plan A: It can raise the entire amount in the form of equity capital.
Plan D: It can raise 50% as equity capital and 50% as 5% preference capital.
Further assume that the existing are Rs.1,20,000 and the tax rate is 35%, out standing ordinary shares
are 10,000 and the market price per share is Rs.100 under all the four alternatives. Which financing plan
should the firm select? (June 2013/08MBA23)
18. Calculate the financial and operating leverage, under situations A and B, financial Plan I and II
respectively, from the following relating to the operations and capital structure of ABC Ltd.
Production and sales 800 units , Selling price per unit Rs.20
Variable cost per unit Rs.15, Fixed costs: Situation A -800 Situation B: Rs.1500
19.Calcualte operating leverage, financial leverage and combined leverage from the following data: