1. Sales quantity = 1000 units, Unit price = Rs. 1500, variable cost per unit = Rs.

s. 800, Fixed cost =

Rs. 5,00,000, 10% Debentures = Rs. 400,000, 12% Preference shares = Rs. 2,00,000, Equity share
capital (8000 shares) = Rs. 1000000. Calculate operating, financial & combined leverage.

2. The following figures relate to two companies:

X Ltd. Y Ltd.
Sales ₹ 20,00,000 ₹ 10,00,000
Fixed cost ₹ 2,00,000 ₹ 1,00,000
Variable cost ₹ 14,00,000 ₹ 6,00,000
Interest ₹ 1,00,000 ₹ 1,50,000
You are required to calculate operating, financial and combined leverage for both the
companies and also comment on the relative risk position.

3. From the following information available for four companies, calculate

a) EBIT
b) Operating Leverage
c) Financial Leverage
d) EPS

P Q R S
Selling Price/unit 15 20 25 30
Variable 10 15 20 25
cost/unit
Quantity(No.) 20000 25000 30000 40000
Fixed Cost 30000 40000 50000 60000
Interest 15000 25000 35000 40000
Tax Rate 40 40 40 40
No. of Equity 5000 9000 10000 12000
Shares

4. Calculate operating and financial leverage under situation A, B & C and financial plans I, II & III
respectively from the following information of XYZ company for producing 800 units. Also find
the highest and lowest combined leverage for the same. Suggest which plan and situation will
be having highest risk and lowest risk.

(Rs.)
Selling Price per unit 30
Variable Cost per unit 20
Fixed Cost:
Situation A 2000
Situation B 4000
 Situation C 6000
Financial Plans:
Capital Structure I II III

Equity 10,000 15,000 5,000

12% Debt 10,000 5,000 15,000

5. The financial manager of a company has formulated various financial plans to finance ₹
30,00,000 required to implement various capital budgeting projects:
i. Either equity capital of ₹ 30,00,000 or ₹ 15,00,000; 10% debentures and ₹
15,00,000 equity.
ii. Either equity capital of ₹ 30,00,000 or 13% preference shares of ₹ 10,00,000 and ₹
20,00,000 equity.
iii. Either equity share capital of ₹ 20,00,000 and 10% debentures of ₹ 10,00,000 or
13% preference capital of ₹ 10,00,000, 10% debentures of ₹ 8,00,000 and ₹
12,00,000 equity.
You are required to determine the indifference point for each financial plan, assuming
35% corporate tax rate and face value of equity shares as ₹ 100. Also show the
confirmation table for each financial plan.

Indicative Answers

Ans 1: OL = 3.5, FL = 1.25 & CL = 4.375

Ans 2:

Particulars X Ltd. Y Ltd.

Operating Leverage 1.5 1.33
Financial Leverage 1.33 2
Combined 2 2.67
Leverage

Ans 3:

P Q R S

EBIT 70,000 85,000 1,00,000 1,40,000

OL 1.43 1.47 1.5 1.43

 FL 1.27 1.42 1.54 1.4

EPS 6.6 4 3.9 5

Ans 4: After solving with proper steps, student will reach to following answers:

Operating Leverage = 1.33 (Situation A)

Operating Leverage = 2 (Situation B)
Operating Leverage = 4 (Situation C)

Plan I Plan II Plan III

Financial Leverage 1.25 1.11 1.43

(Situation A)

Financial Leverage 1.43 1.18 1.82

(Situation B)

Financial Leverage 2.5 1.43 10

(Situation C)

Combined Leverage:
Highest Value = Situation C and Plan III = 40
Lowest Value = Situation A and Plan II = 1.47

Ans 5:

i. Indifference point = Rs. 3,00,000, & EPS = 6.5

ii. Indifference point = Rs. 6,00,000, & EPS = 13
iii. Indifference point = Rs. 5,55,000, & EPS = 14.624