15 May 2013
Dear sir please give me solution for my Que: A firm has sales of `75,00,000 variable cost of `42,00,000 and fixed cost of `6,00,000.It has a debt of `45,00,000 at 9% interest and equity of `55,00,000. At what level of sales, the EBIT of the firm will be equal to zero? And at what level of Sales, the EBT of the firm will be equal to zero? Please Give detail calculation!
15 May 2013
Dear Ganesh ji (I have calculated same solution as given by u) But solution given in suggested ans. sheet (Please see) >>> EBIT to became zero means 100% reduction in EBIT. F. Leverage = EBIT/EBT
2700000/2295000= 1.1764
O. Leverage 3300000/2700000 = 1.2222
Combined Leverage = 1.1764 x 1.2222= 1.438 Sales have to drop by 100/1.438 = 69.54% New Sales will be = 7500000 x (1-0.6954) = ` 2284500( approx)
see we have taken variable cost also as fixed cost if we are deducting it from deducted sales.. this method will be holds good if we have unit wise details of sale price and variable cost is given,
so solution given was correct, i have given blind solution..ignore it and follow suggested answers and take care of it exams
CAclubindia
