1. 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.

2. The following figures relate to 2 companies:

Particulars P Ltd (Rs in lakhs) Q Ltd (Rs in lakhs)

Sales 500 1000
Variable cost 200 300
Contribution 300 700
Fixed assets 150 400
EBIT 150 300
Interest 50 100
Profit before tax 100 200
You are required to:
1. Calculate the operating, financial and combined leverages for the two companies.
2. Comment on the relative risk position of them

3. The Balance sheet of ABC Company is given below:

Liabilities Rs Assets Rs
Equity capital(Rs10 per share) 90,000 Net fixed assets 2,25,000
10% long term debt 1,20,000 Current assets 75,000
Retained earnings 30,000
Current liabilities 60,000
Total 3,00,000 3,00,000
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

4. The data relating to two companies are as given below:

Company A Company B
Capital Rs.6,00,000 Rs.3,50,000
12% Debentures 4,00,000 6,50,000
Output (units) per annum 60,000 15,000
Selling price per unit 30 250
Fixed costs per annum 7,00,000 14,00,000
Variable costs per unit 10 75
 You are required to calculate the operating leverage, financial leverage and combined leverage
of two companies

5. Calculate operating, financial and combined leverage from the following data: (Jan
2016/14mBA22)

Share capital(shares of Rs.100 each) 10,00,000

8% Debentures 5,00,000
Sales 5,00,000
Variable cost 40% of sales
Fixed cost 1,00,000
Tax rate 30%
6. 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 favorable 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?

7. 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

Capital structure: Financial Plan I Financial Plan II

Equity Rs.5000 7000

Debt Rs.5000 2000

Cost of debt@ 12%

8. 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.
 Particulars Amount
Installed capacity(units) 1200
Actual production and 800
sales(units)
Selling price per unit(Rs) 15
Variable cost per unit(Rs) 10
Fixed cost in situation A(Rs) 1000
Fixed cost in situation B(Rs) 2000
Financing plans:
particulars 1 2
Equity 5000 7500
Debt 5000 2500
Cost of debt 12% 12%

9. A company’s capital structure consists of Rs 500000(shares of Rs 100 each) equity capital

and Rs 200000, 10% debentures. The sales increased by 20% from 50,000 units to 60,000
units: the selling price is Rs 10 per unit. Variable cost amount to Rs 6 per unit and fixed
expenses amount to Rs 100000. The rate of income tax is assumed to be 50%.

You are required to calculate

i. The percentage increase in earnings per share
ii. The degree of financial leverages at 50,000 units and 60,000 units.
iii. The degree of operating leverage at 50,000 units and 60,000 units.

10. The following data are available for X Ltd.

Selling Price per unit = Rs 120
Variable cost per unit = Rs 70 of
Fixed cost = Rs 200000
i. What is the operating leverage when X LD produces and sells 6000 units.
ii. What is the percentage change that will occur in the EBIT of X Ltd. If output
increases by 5%.

11. The following data are available for ABC Ltd. and XYZ Ltd. companies
ABC Ltd XYZ Ltd
Sales Volume 10,000 units 10,000 units
Selling Price per unit of output 200 Rs 200 Rs
Variable cost per unit of 120 Rs 150 Rs
output
Fixed operating cost per unit 60 Rs 30 Rs
of output
Equity Rs 300000 Rs 600000
Preference shares Rs 100000 ----
Debt Rs 600000 Rs 400000
Interest rate on debt 16.25% 15%
Dividend rate on preference 13% -----
shares
Tax rate 35% 35%

Required
a. Calculate the Return on Equity ( ROE), Degree of Operating Leverage ( DOL) ,Degree of
Financial Leverage ( DFL), Degree of Total Leverage ( DTL), Operating Break- even
point and overall break – even point for each company.
b. As a financial analyst, which of the two companies you would describe more risky ? Give
reasons