Financial information for the year 2023-24 of two companies, N Limited and C Limited are as under: Details N Limited C Limited Equity share capital…

(i) Calculation of Contribution N Limited C Limited Financial Leverage (FL) = EBIT / EBT or EBIT / (EBIT -Interest) 2 = EBIT / (EBIT - 50,000) 2 EBIT - 1,00,000 = EBIT EBIT = 1,00,000 EBT = 50,000 1.5 = EBIT / (EBIT - 56,000) 1.5 EBIT - 84,000 = EBIT EBIT = 1,68,000 EBT = 1,12,000 Combined Leverage (CL) = Contribution / EBT 8 = Contribution / 50,000 Contribution = 4,00,000 4.5 = Contribution / 1,12,000 Contribution = 5,04,000 (ii) Calculation of Margin of safety (MOS) in % MOS = (Contribution - Fixed Cost) / Contribution = EBIT / Contribution N Limited C Limited MOS = 1,00,000/4,00,000 = 25% = 1,68,000/5,04,000 = 33.33% Part (ii) can also be presented in following way: Calculation of Margin of safety (MOS) in % MOS = 1/operating leverage (OL) OL = CL/FL N Limited C Limited OL = 8/2 = 4 = 4.5/1.5 = 3 MOS = 1/4 = 25% = 1/3 = 33.33% (iii) Sales of C Limited Let assume that PV ratio is 40% PV Ratio = Contribution / Sales OR Sales Sales = 5,04,000 / 0.40 = 12,60,000 Part (iii) of the solution can be solved by any alternative assumption.