M/s KRY Limited is a mid-sized company engaged in manufacturing and sales of Industrial equipment. The capital structure of the company is as under:…

CA Intermediate · Financial Management and Strategic Management · PYQS · September 2025
M/s KRY Limited is a mid-sized company engaged in manufacturing and sales of Industrial equipment. The capital structure of the company is as under: Equity Share Capital (12,500 Shares of 100 each) 12,50,000 6% Debentures 50,00,000 8% Bank of Loan XXXXX Other information are as under: Total Sales 75,00,000 P/V Ratio 40% Operating Leverage 2.4 Corporate Tax Rate 30% P/E Ratio 8 You are required to calculate following: (i) Earnings Before Interest and Tax (ii) Fixed Cost excluding interest (iii) Amount of Bank Loan and Bank Interest (iv) Earning Per Share (v) Market Price Per Share

Suggested Answer and Working Notes:

(i) Operating Leverage = Contribution / EBIT 2.4 = (75,00,000 x 0.40) / EBIT EBIT = 30,00,000 / 2.4 = 12,50,000 (ii) Fixed Cost excluding interest = Contribution – EBIT = 30,00,000 – 12,50,000 = 17,50,000 (iii) Combined Leverage = Contribution / EBT 3.84 = 30,00,000 / EBT EBT = 30,00,000 / 3.84 = 7,81,250 Total Interest = EBIT – EBT = 12,50,000 – 7,81,250 = 4,68,750 Interest on bank loan = Total Interest - Interest on debentures = 4,68,750 - (50,00,000 x 6%) = 4,68,750 - 3,00,000 = 1,68,750 Amount of bank loan = 1,68,750 / 8% = 21,09,375 (iv) Particulars (₹) EBT (Earnings before tax) 7,81,250 Less: Tax @ 30% 2,34,375 PAT (Profit after tax) 5,46,875 No. of shares 12,500 Earnings per share (EPS) 43.75 (v) Market price per share = EPS x PE Ratio = 43.75 x 8 = 350

Topics: Part-A: Financial Management

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