Amity business school

1. Amity Business School
1.Calculate the degree of operating leverage, degree of financial leverage & degree of
ombined leverage from the following information.
Firm 1 Firm 2 Firm 3
nits 60000 15000 100000
elling Price $.60 $5 $.10
ariable cost $.20 $1.50 $.02
xed cost $7000 $14000 $1500
terest on borrowings $4000 $8000 -
2.The following information for the year ending 31st
March 2011 is available
terest on Debt $400000
eference Dividend $200000
orporate Taxes 40%
alculate the degree of financial Leverage if
EBIT is $1000000 and
EBIT is $1500000

2. Amity Business School
Q3.Consider the following figures:
Net Sales are Rs.16 Crores
EBIT as a percentage of sales is 10%
Corporate tax rate is 40%
Capital employed :
Equity shares @ of Rs.10 each is Rs 4 Crores
12% secured debenture @ of Rs 100 each Rs. 2 Crores
You are required to calculate EPS & percentage change in EPS if EBIT increases by
10%
Q4. Consider the following information of Pearson Ltd.
Selling price per unit Rs.200
Variable cost per unit Rs.120
Fixed Cost Rs.2000000
Interest on Debt Rs.1200000
Tax rate 40%
No of units produce 120000 Calculate the combine leverage &
percentage change in EPS if sales are increased by 5%

3. Amity Business School
Q5. ZOOP Ltd had the following Balance Sheet for the year ended 31st
March 2011
Liabilities Assets
Equity Capital (@Rs.10each) 1000000 Fixed Asset (net) 2500000
Reserve and Surplus 200000 Current Assets 1500000
15% debenture 2000000
Current Liabilities 800000
4000000 4000000
Additional information
Fixed cost (excluding interest payment) Rs.800000
Variable operating cost ratio 80%
Total Asset turnover ratio 3
Income tax 50%
You are required to calculate i. EPS ii. OL iii. FL iv. Combined leverage.

4. Amity Business School
Q6. The following are the operating result of a firm:
Sales (units) 25000
Interest p.a. Rs.30000
Selling price unit Rs.24
Tax Rate 50%
Variable cost Rs.16 per unit
No. of equity shares 10000
Fixed Cost p.a. Rs.80000
Compute the followings:
. Break even sales
i. EBIT
ii. EPS
v. Operating Leverage
v. Financial Leverage
vi. Combined Leverage.

5. Amity Business School
Q7. The following details of ABC ltd is available as on 31st
March 2011. you are
require to prepare the Income Statement of the company.
Operating leverage 3
Financial leverage 2
Interest charge p.a. Rs.20 Lakhs
Taxes 50%
Variable cost as a percentage of sales is 60%
Q8. You are a finance manager of Gel pen Ltd. The degree of operating leverage of
Your company is 5. The degree of financial leverage is 3. Director of your company
Has found that the degree of operating leverage & degree of financial leverage of your
Nearest competitor INK pen Ltd are 6 & 4 respectively. In his opinion the Ink pen ltd
Is better than that of Gel pen ltd. because of high value of degree of leverages.
Do you agree to your managing Director? Justify.

6. Amity Business School
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Q9.X corporation has estimated that for a new product its Break even point is 2000 units
If the item is sold for Rs.14 per unit; the variable cost is Rs. 9 per unit. Calculate the
Degree of operating leverage for sales volume of 2500 units and 3000 units.
Q10. The capital structure of a company consists of ordinary share capital of
Rs10,00,000 (shares of Rs 100 each) and Rs 10,00,000 of 10% debenture.
The selling price is Rs 10 per unit; Variable costs amount to Rs 6 per unit and fixed
Expenses amounted to Rs 2,00,000. The income tax is assumed to be 50%. The sales
Level are expected to increase from 1,00,000 units to 1,20,000 units.
You are required to calculate the degree of operating, financial leverage
Q11. A firm’s sales, variable costs and fixed cost amount to Rs 75,00,000, Rs 42,00,000
And Rs 6,00,000 respectively. It has borrowed Rs. 45,00000 at 9% and its equity capital
Totals Rs 55,00,000.
What is firms ROI?
Does it have favorable financial leverage
Calculate operating, financial & combined leverage.
If the sales drop to Rs. 50,00,000, what will be the new EBIT?

7. Amity Business School
Q12. Following is the Balance sheet of Z ltd
Liabilities Amount Assets Amount
Equity Share Capital 60000 Fixed Asset 150,000
Retaining Earnings 20000 Current Assets 50000
10% long term debts 80000
Current Liabilities 40000
The company’s total Asset turnover ratio is 4, its fixed operating costs are Rs 1,00,000
And its variable operating cost is 40%. The income tax is 50%. Calculate the financial
Leverage when face value of the share is Rs 10. also calculate the operating leverage.

8. Amity Business School
Q13. Installed Capacity is 20,000 units, Actual Production and sales is 75% of installed
Capacity, selling price per unit Rs 10, Fixed cost Rs 30,000, Total operating cost 80%.
Calculate operating leverage
Q14. From the following information calculate the percentage of change in EPS if
Sales are increased by 5%
EBIT Rs.1120
EBT Rs.320
Fixed Cost Rs.700
Q15. Calculate operating leverage, Financial Leverage & combine leverage under
Situation 1 & 2 and financial plan A & B
Installed capacity 2000 units
Annual production and sales 50% of installed capacity
Selling price per unit is Rs20: Variable cost per unit Rs.10
Fixed Cost: Situation 1 is 4000 & for Situation 2 is 5000
Capital Structure for Plan A is Equity Rs 5000 & Debt (cost 10%) is Rs.15000
for Plan B is Equity Rs.15000 & Debt (cost 10%) is Rs.5000

9. Amity Business School
Q19. A firm has sales of Rs.10,00,000, Variable Cost of Rs. 7,00,000 and fixed costs of
Rs. 2,00,000 and debt of Rs. 5,00,000 @ 10% rate of Interest. What are the operating
Financial, and combined leverage? If the firm wants to double its earnings before
Interest and tax, how much of a rise in sales would be needed on a percentage basis?
Q20. Explain the significance of operating, financial & combined leverage in
Managerial decision making with example.
Q21.Income statement of Zenith ltd is given below. Calculate & interpret its degree of
Operating leverages, degree of financial leverage and degree of combined leverage.
Sale Rs.1050000
Variable Cost Rs. 767000
Fixed Cost Rs. 75000
EBIT Rs.208000
Interest Rs.110000
Taxes@ 30% Rs.29400
Net Income Rs.68600

10. Amity Business School
Q22. If the combined leverage & operating leverage figures of a company are
2.5 & 1.25 respectively find the financial leverage & P/V ratio, given that equity
Dividend per share is Rs.2, interest payable per year is Rs.1 lakhs, total fixed cost is
50,000 and sales Rs.10 lakhs