The Capital structure of Magnus Ltd. is as follows: (₹) Equity Share of 10 each 8,00,000 10% Preference Share of 100 each 5,00,000 12% Debentures of…

CA Intermediate · Financial Management and Strategic Management · MTP · January 2026
The Capital structure of Magnus Ltd. is as follows: (₹) Equity Share of 10 each 8,00,000 10% Preference Share of 100 each 5,00,000 12% Debentures of 100 each 7,00,000 20,00,000 Additional Information: Profit after tax (Tax Rate 30%) are - 2,80,000Operating Expenses (including Depreciation - 96,800) are 1.5 times of EBITEquity Dividend paid is 15%Market price of Equity Share is 23 CALCULATE: (i) Operating and Financial Leverage (ii) Cover for preference and equity dividend

Suggested Answer and Working Notes:

Working Notes: (₹) Net Profit after Tax 2,80,000 Tax @ 30% 1,20,000 EBT 4,00,000 Interest on Debentures 84,000 EBIT 4,84,000 Operating Expenses (1.5 times of EBIT) 7,26,000 Sales 12,10,000 (i) Operating Leverage Contribution = Sales - Operating Expenses (excluding Depreciation) = 12,10,000 - (7,26,000 - 96,800) = 12,10,000 - 6,29,200 = 5,80,800 Operating Leverage = Contribution / EBIT = 5,80,800 /4,84,000 = 1.2 times Financial Leverage Financial Leverage = EBIT / EBT = 4,84,000 /4,00,000 = 1.21 times (ii) Cover for Preference Dividend Preference Dividend = 10% of 5,00,000 = 50,000 Cover for Preference Dividend = PAT / Preference Share Dividend = 2,80,000 /50,000 = 5.6 times Cover for Equity Dividend Equity Share Capital = 8,00,000 Equity Dividend = 15% of 8,00,000 = 1,20,000 Cover for Equity Dividend = (PAT - Preference Dividend) / Equity Share Dividend = (₹ 2,80,000 -50,000) /1,20,000 = 2,30,000 /1,20,000 = 1.92 times

Topics: Part-A: Financial Management

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