Leverage & Capital Structure
Question 1:
The following data of ABC Limited Company for 2015:
Issues TK.
Sales in Units 30000 Units
Sales Price 25.00
Variable Cost per unit 12.50
Annual fixed cost 3,00,000
Total assets 10,00,000
10% debenture/ bond/long-term investment 5,00,000
Share Capital (100 Tk. Each) 5,00,000
Corporate tax rate 25%
Based on the above data, you are required to calculate:
i. DOL (Degree of Operating Leverage)
ii. DFL (Degree of Financial Leverage)
iii. DTL (Degree of Total Leverage/ Degree of Combined Leverage)
iv. BEP (Break-Even Point) in units
v. BEP TK.
vi. EPS (Earnings Per Share)
vii. ROI (Return on Investment)
Question 2:
The Operational data of Square & Apex Limited for the year 2018 is as follows:
Square Apex
Accounts
25000 Units 20000 Units
Selling Price Per Unit 75 100
Variable Cost Per Unit 40 55
Operating Fixed Cost 3,00,000 4,00,000
Total Assets 12,00,000 12,00,000
Common Stock Capital (Tk. 100 Per Share) 6,00,000 5,00,000
12% Debt Capital 6,00,000 7,00,000
Tax Rate 40% 40%
From the above discussion, you are required to calculate the following:
i. Degree of Operating Leverage (DOL)
ii. Degree of Financial Leverage (DFL)
iii. Degree of Total Leverage (DTL)
iv. Earnings Per Share (EPS)
v. Return on Investment (ROI)
1
Leverage & Capital Structure
Question 3:
The Operational data of Grameenphone Limited for the year 2012 is as follows:
Issues TK.
Sales 10,000 Units
Sales Per Unit 28
Variable Cost Per Unit 10
Fixed Cost 1,00,000
10% Debenture 2,00,000
12% Preferred Share 1,00,000
No. of Common Shares 100
Tax Rate 40%
Requirements:
i) EPS (Earnings Per Share)
ii) Degree of Operating Leverage (DOL)
iii) Degree of Financial Leverage (DFL)
iv) Degree of Total Leverage (DTL)
Question 4:
The Hardware Company's Manufacturers’ income statement for 2003 is as follows:
Hardware Company
Income Statement
For the year ended December 31, 1997
Sales (10,000 shares @ Tk. 50 each) 5,00,00
Less: Variable Costs (10,000 shares @ 20) 2,00,000
Fixed Costs 1,50,000
EBIT 1,50,000
Less: Interest Expense 60,000
EBT 90,000
Income Tax Expense (40%) 36,000
Earnings After Taxes (EAT) 54,000
Given this income statement, compute the following:
i) Degree of Operating Leverage
ii) Degree of Financial Leverage
iii) Degree of Combined Leverage
iv) Break-even point in units (number of shares)
v) BEP in Tk.
2
Leverage & Capital Structure
Question 5:
The Balance Sheet of WILLAM Company is as follows:
Liabilities TK. Assets TK.
Equity Capital ( Tk. 10 Per Share) 60,000 Net Fixed Assets 1,50,000
10% Long-term Debt 80,000 Current Assets 50,000
Retained Earnings 20,000
Current Liabilities 40,000
2,00,000 2,00,000
The company’s total asset turnover ratio is 3 times; its fixed operating costs are TK. 1,00,000,
and its variable operating cost ratio is 40%. The income tax rate is 35%.
Requirements:
i) Calculate the different types of leverage for the company.
ii) Determine the likely level of EBIT if EPS is
a. TK. 1 b. TK. 3 c. TK. 0
Question 6:
Calculate the degree of Operating, Financial, and combined leverages under financial
plans 1 & 2, respectively, from the following information on the operating and capital structure
of a textile company:
Issues TK.
Total Assets 60,000
Variable Cost as % of Sales 60%
Fixed Cost 10,000
Financial Plan-1 Financial Plan-2
Equity 30,000 10,000
10% Debenture 10,000 30,000
Tax Rate 40%
Question 7:
A Company recently sold 10,000 units at TK 7.50 per unit. The Annual Fixed Cost is
TK 22,500, and the Variable cost unit is TK 3.00. Annual interest charges on debt capital of
TK. 80,000 at 10% and the firm has 12% preferred stock of Tk. 40,000. The company currently
has 2,000 shares of common stock. Assume that the company is in a 40% tax bracket, you are
required to:
A) Calculate the degree of operating, financial, and total leverage:
B) Calculate the EPS at-
i) Current level (10,000) of sales
ii) 12,000 Units of sales
iii) 15,000 Units of sales
