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Leverage
1. The capital structure of Moon Ltd. is given below:
Rs. (lacks)
Equity share capital (Rs. 10 each per share) 10.00
Retained earnings 6.00
10% preference share capital 4.00

20.00

The firm has planned to undertake an expansion scheme of Rs. 10,00,000 which can be
financed (a)entirely by issue of equity shares of Rs. 10 each; (b) by issue of 12%
debentures of . 100 each at par.as a result of expansion, sales and operating fixed cost
will increase by 60% and 75% respectively. The other relevant informations are given
below:
Sales Rs. 50,00,000
Variable cost 60%
Operating fixed cost 5,00,000
Corporate tax 40%
Calculate leverages and EPS before and after expansion and give your opinion for taking
appropriatedecision with respect to financing.

2. MalanchaPlast Ltd. provides you the following information:

Capital Gearing Ratio 3
Fixed Cost : 1/3rd of the total operating cost
Dividend yield 6%
Operating Ratio 75%
Ratio of 18% preference Shares to 15% debentures 12.5%
Dividend Payment Ratio 30%
Accumulated Reserves 4,00,000
Capital Employed 24,00,000
Market Price of an Equity Share of Rs.10 135
Tax rate: 40%
Prepare an Income Statement and calculate the degree of operating leverage,
financial
leverage and combined leverage.

3. Zica Ltd. provides you the following information:

Capital structure; 12% debenture Rs. 2,00,000; 9% preference Share CapitalRs. 3,00,000
and4,000 equity share of Rs. 100 each.
Revenue operating cost details : sales 3,000 units @ Rs. 600 p.u.; Variable operating
cost p.u.Rs.350; Fixed operating cost Rs. 3,20,000.
Corporate Income tax rate and Dividend Distribution Tax rate may be assumed at 30%

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Guiding you today for a better Tomorrow Aaditya Gupta Classes
Phone – 99035-03989

and10% respectively.
Calculate DOL, DFL and DCL of Zica Ltd. using the concept of leverage, find the
percentagechange in EPS when sales increases by 10%.

2 P a g e Enroll now for B.COM / CA/ CS/ CMA / MBA/ Govt.Exams for all subjects and get
the opportunity to learn from the best. Centres – Bhawanipore- Girish Park – Bangur-
Tollygunj- Howrah.