Strategic Finance
By: Jessica • Research Paper • 323 Words • February 11, 2010 • 969 Views
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1.
From the following selected operating data, determine the DOL and comment on which company has the greater amount of business risk and why?
A B
Sales 2500000 3000000
Fixed Cost 750000 1500000
Variable cost 15% of sales 25% of sales
2.
Sales 2000000
Variable cost 1400000
Fixed Cost 400000 (includes 15% interest on 1 million borrowing
i.) Calculate DOL,DFL
ii.) What if sales increase by 100%
DOL = %D EBIT or Sales – Variable cost
%D Sales Contribution margin
DFL = EBIT
EBIT - Interest
DCL = DOL x DFL
3.
Company A has EBIT of Rs. 2.5 million and its present borrowing are as follows:
14% term loans amounting to 4,000,000
Working Capital Borrowing @16% amounting to 3,300,000
Short term loans @15% amounting to 1,500,000
The sales of the company are growing and to support the extended demand the company proposes to obtain an additional bank loan of Rs. 2.5 million. EBIT is expected to increase by 20%. Calculate interest coverage ratio before and after the borrowing.
4.
Company P Company Q
Sales 500 1000
VC 200 300
Contri. Margin 300 700
FC 150 400
EBIT 150 300
Interest 50 100
EBT 100 200
Calculate DOL, DFL, DCL
Assignment Question
A B C
Financial Leverage 3 4 2
Interest 200 300 1000