From the following information for financial year 2023-24, Financial Leverage (FL) = 4 P/V Ratio = 40% Tax rate = 30% Depreciation (part of…

WN1 - Calculation of EBIT using Financial Leverage FL = EBIT / (EBIT-Int.) - Dp/(1-t) Let EBIT be 'X' Preference Dividend (Dp) = 0.15X 4 = X / (X-57,400) - (0.15X / 0.7) 3.16X - 2,29,600 = X X = EBIT = 1,06,296 Preference Dividend = 1,06,296 x 0.15 = 15,944 WN2 - Calculation of Total Fixed Cost Cash Fixed Cost = Cash Breakeven sales x PV Ratio = 2,25,000 x 0.40 = 90,000 Total Fixed Cost = 90,000 + 10,000 (Depreciation) = 1,00,000 Therefore Contribution = 1,06,296 + 1,00,000 = 2,06,296 i. Income Statement for FY 2023-24: Particulars Amount (₹) Sales (2,06,296 / 0.40) 5,15,740 (-) Variable Cost (3,09,444) Contribution 2,06,296 (-) Fixed Cost (See Wn 2) (1,00,000) EBIT (See Wn 1) 1,06,296 (-) Interest Exp (57,400) EBT 48,896 (-) Tax (14,669) EAT 34,227 (-) Preference Dividend (1,06,296 X 15%) (15,944) Earnings For Equity Shareholders 18,283 ii. Operating Leverage & Combined Leverage Operating Leverage = Contribution / EBIT = 2,06,296 / 1,06,296 = 1.94 times Combined Leverage = OL x FL = 1.94 x 4 = 7.76 times iii. Percentage change in EPS, if sales increase and decreases by 7% Combined leverage is the study from Sales to Eps, where combined leverage measures the % change in EPS due to increase/decrease in % change in sales CL = % Change in EPS / % Change in sales 7.76 = % Change in EPS / 7 Therefore, % Change in EPS = 54.32% If sales increase by 7%, then EPS will rise by 54.32% and on the contrary if sales decrease by 7%, then EPS will fall by 54.32%. iv. Calculate Return on Equity Shareholders funds on 31.03.24 Return on Equity shareholders' funds = Earnings for Equity holders / Total Eq. Shareholders' funds = 18,283 / (1,00,000 + 35,637) = 18,283 / 1,35,637 = 13.48% v. Amount of Debt, if post tax interest rate is 6.65% Pre-tax Interest % = Interest rate (post tax) / (1-t) = 6.65 / 0.70 = 9.5% Debt Amount = Interest (Rs.) / Interest (%) = 57,400 / 0.095 = 6,04,210