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  • Calculate The Degree of DOL, DFL, DCL UNIT 4

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    Harihara Puthiran
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    1) The document calculates the degree of operating leverage, financial leverage, and combined leverage for three firms A, B, and C. 2) It finds that firm A has a degree of operating leverage of 1.47 times, a financial leverage of 1.2 times, and a combined leverage of 1.764 times. 3) Formulas are provided for calculating the degree of operating leverage, financial leverage, and combined leverage using information about fixed costs, variable costs, interest on borrowed funds, and sales.

    Original Description:

    CALCULATIOIN OF DOL,DCL,

    Original Title

    Calculate the Degree of DOL,DFL,DCL UNIT 4

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    1) The document calculates the degree of operating leverage, financial leverage, and combined leverage for three firms A, B, and C. 2) It finds that firm A has a degree of operating leverage of 1.47 times, a financial leverage of 1.2 times, and a combined leverage of 1.764 times. 3) Formulas are provided for calculating the degree of operating leverage, financial leverage, and combined leverage using information about fixed costs, variable costs, interest on borrowed funds, and sales.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
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    95 views2 pages

    Calculate The Degree of DOL, DFL, DCL UNIT 4

    Uploaded by

    Harihara Puthiran
    1) The document calculates the degree of operating leverage, financial leverage, and combined leverage for three firms A, B, and C. 2) It finds that firm A has a degree of operating leverage of 1.47 times, a financial leverage of 1.2 times, and a combined leverage of 1.764 times. 3) Formulas are provided for calculating the degree of operating leverage, financial leverage, and combined leverage using information about fixed costs, variable costs, interest on borrowed funds, and sales.

    Copyright:

    © All Rights Reserved
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    of 2

    16.

    Calculate the degree of operating leverage (DOL), financial leverage (DFL) and
    combined leverage (DCL) for the following firms
    A B C

    •Fixed cost 7000 14000 1500


    •Variable cost 12000 22500 2000
    •Interest on borrowed funds 4000 8000 -
    •Sales 36000 75000 10000

    1. Calculation of Degree of Operating Leverage

    Formula: CONTRIBUTION
    --------------------
    EBIT/OP.PROFIT

    STEP:1 Calculation of Contribution

    Sales = 36000
    Less V.Cost = 12000
    Contribution = 24000
    Less F.Cost = 7000
    EBIT/OP.Profit = 17000

    OP.Leverage = Contribution
    ---------------------
    EBIT/Op.Profit
    = 24000
    17000
    So = 1.47 times

    2. Calculation of Financial Leverage


    Formla = Op.Income/EBIT
    Taxable Income/EBT

    OR = EBIT
    EBT-I
    = 24000
    24000-4000
    = 24000
    20000
    = 1.2 Times

    3. Calculation Combined Leverage

    Formula = OPERATING LEVERAGE X FINANCIAL LEVERAGE

    = 1.47 X 1.2
    = 1.764 Times

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