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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%.

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


10% Debt

Rs. 130 Lakhs

15% Preference share Capital

Rs. 20 Lakhs

Degree of Operating Leverage


Degree of Financial Leverage


Income Tax Rate


Equity Share Capital of Rs. 10 each

Rs. 36 Lakhs

Reserves and Surplus

Rs. 55 Lakhs

Miscellaneous Expenditure

Rs. 1 Lakhs

(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


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


Degree of Financial Leverage


Degree of Operating Leverage


Income Tax Rate


Variable cost ratio


Rate of Interest on Debt


CA. Subash Poudel