TUTORIAL ON LEVERAGES

1. Consider the following information for Omega Ltd.:

Rs. in lakhs
EBIT (Earnings before Interest and Tax) 15,750
Earnings before Tax (EBT): 7,000
Fixed Operating costs: 1,575
Required:
Calculate percentage change in earnings per share, if sales increase by
5%.

2. Calculate the operating leverage, financial leverage and combined

leverage from the following data
under Situation I and II and Financial Plan A and B:
Installed Capacity 4,000 units
Actual Production and Sales 75% of the Capacity
Selling Price Rs. 30 Per Unit
Variable Cost Rs. 15 Per Unit
Fixed Cost: Under Situation I Rs. 15,000
Under Situation-II Rs.20,000

Capital Structure: Financial Plan

A B
Rs. Rs.
Equity 10,000 15,000
Debt 10,000 5,000
(Rate of Interest at 20%)

3. A firm has sales of Rs. 75,00,000 variable cost of Rs. 42,00,000 and
fixed cost of Rs. 6,00,000. It has a debt of Rs. 45,00,000 at 9% and equity
of Rs. 55,00,000.
(i) What is the firm’s ROI?
(ii)What are the operating, financial and combined leverages of the firm?