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Question 1:

The net Sales of A Ltd. is Rs. 30 Crores. Earnings before interest & tax of the company as a percentage of net
sales is 12%. The capital employed comprises of Rs. 10 Crores of equity, Rs. 2 Crores of 13% Cumulative Pref.
Share Capital & 15% Debentures of Rs. 6 Crores. Income Tax Rate is 40%.
(i)

Calculate ROCE.

(ii) Calculate the ROE for the company and indicate its segment due to the presence of Preference share
capital & Borrowings (Debenture).
(iii) Calculate the operating leverage of the company given that the combined leverage is 3.
(iv) Calculate WACC.

Question 2:
Layak Pvt. Ltd. provides you the following information:
Variable cost as a percentage of sales

60%

10% Debt

Rs. 130 Lakhs

15% Preference share Capital

Rs. 20 Lakhs

Degree of Operating Leverage

2:1

Degree of Financial Leverage

2.5:1

Income Tax Rate

40%

Equity Share Capital of Rs. 10 each

Rs. 36 Lakhs

Reserves and Surplus

Rs. 55 Lakhs

Miscellaneous Expenditure

Rs. 1 Lakhs

Required:
(a) Calculate Return on Investment (ROI), Return on Equity Shareholders Fund (ROE) & Price-Earning
Ration if market price of an equity share is Rs. 20. Does it have a favorable financial leverage?
(b) Also indicate segments of ROE due to presence of Preference share capital & Debt.
Question 3:
Prepare the Income Statement and Balance Sheet from the following data:
Price Earnings Ratio

3 Times

Market Price per equity share

Rs. 18

No. of Equity share of Rs. 10 each

10,000

No. of 12% Pref. Shares of Rs. 100 each

1,000

Degree of Financial Leverage

2-1

Degree of Operating Leverage

2-1

Income Tax Rate

40%

Variable cost ratio

60%

Rate of Interest on Debt

10%

CA. Subash Poudel

Leverages