Total capital required 10000000

A)

Debt 1000000 5000000 7500000

Marlet shar 100 100 80

Here, we can calculate this in 3 scenarios.

1) When 10lakh debt is used Shares 9000000 No of shares 90000

EBIT 1000000 2000000 3000000
Less Int 120000 120000 120000
EBT 880000 1880000 2880000
Less tax 264000 564000 864000
EAT 616000 1316000 2016000

EPS 6.844444 14.62222 22.4

2) When 50 lakh debt is used Shares 5000000 No of shares 50000

EBIT 1000000 2000000 3000000
Less Int 675000 675000 675000 Int calculation
EBT 325000 1325000 2325000 Upto 25 lakh 300000
Less tax 97500 397500 697500 25-50lakh 375000
EAT 227500 927500 1627500 675000

EPS 4.55 18.55 32.55

3) When 75 lakh debt is used Shares 2500000 No of shares 31250

EBIT 1000000 2000000 3000000
Less Int 1175000 1175000 1175000 Int calculation
EBT -175000 825000 1825000 Upto 25 lakh 300000
Less tax -52500 247500 547500 25-50 lakh 375000
EAT -122500 577500 1277500 Above 50 lakh 500000
1175000
EPS -3.92 18.48 40.88

B)
Here, when we have less EBIT and more debt is used, our EPS decreases. This is because we don’t have enough earning to fun
When the earnings is 20lakh, the EPS increases to a certain stage of using debt but decreases after a point
When the earnings is 30lakh, the EPS goes on increasing in both the three cases. This is because debt is cheaper for them and
So, we suggest that if the company has enough earnings (in the case of having 30lakh EBIT), it can go for inclusing higher debt
 ve enough earning to fund our interest

t is cheaper for them and tehre are less shareholdrs, so profit will be divided among less people
o for inclusing higher debt in its capital structure. But if the earnings are low, its better to take less debt
A)
(Rs. Crores) Cost (Per unit):
Raw material inventory 20000 Raw material 55 Total cost
WIP inventory 22000 Direct labour 32 Profit
Finished goods inventory 31000 Overheads 22 SP
Receivables 32000 Selling and administration exp 20
Profit @ 10% of COGS

RMCP 32.72727 611.111111111111

WIPCP 18.16514 1211.11111111111

FGCP 21.62791 1433.33333333333

ICP 72.52032
73 days

DCP 26.68891 1199

GOC 99.20922

CDP 90 days

NOC 9.209225 days

Almost 9 days

B)
The debtor collection period is high. It takes almost 1 month for the company to get the money back. This means that the com
Having a strict or loose credit policy has its own pros and cons
If the company gives loose credit policy, it will be a good thing for their customers as they get enough time to pay the bills
But this would also lead an increase in company's operating cycle\ and CCC

Having a strict credit policy would help them in getting the money back faster
 109
10.9
119.9

This means that the company's revenue is tied up. This ampount could have been used for other activities. This could also be the reason fo

time to pay the bills

This could also be the reason for the increase in operating cycle as well.