Financial Mgt. - ipcc

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Richa

student

83 Points Joined August 2010

the operating profit (EBIT) of ABC Ltd. is rs 160000 its capital structure consists of the following:-

10 % debenture rs 5 00000

12% prefrence share rs 100000

eq. share pf rs 100 each rs 400000

the company is in the 35% tax bracket . the withholding tax on prf. dividend is 10%

1) determine the firms EPS

2) determine the % change in EPS associated with 30 % increase in EBIT

3) determine the degree of financial leverage

4) assuming degree of operating leverage as 2, determine the degree of combined leverage

Ans :- 14.58, 22.46% , 1.78, 3.56

Replies (8)

Rachit

Ca-Final Article.

565 Points Joined June 2010

i tried it but i dont thinlk your all answers are right..........

Rachit

Ca-Final Article.

565 Points Joined June 2010

Firm EPS
EBIT	160000	208000
LESS INTT.	50000	50000
EBT	110000	158000
Less tax @ 35%	38500	55300
EAT	71500	102700
Less Pefence Dividend	13200	13200
Earning available to equityshareholders	58300	89500
Equity Shares	4000	4000
EPS	14.575	22.375
		21.375

Richa

student

83 Points Joined August 2010

hi Rachit..

will u pls show me pref. dividend calculation..

and y u hav calculated dat another column.. EBIT 208000 from where u calculated dis amt n y?

pls reply fast..

Richa

student

83 Points Joined August 2010

after dis pls see below Q.

Richa

student

83 Points Joined August 2010

the hypothetical Ltd.'s current EBIT is rs 25 lakh. its present borrowings are:-

14% term loan rs 40 lakh

working capital borrowing from bank at (0.16) rs 33 lakh

15%public deposits rs 15 lakh

the sales of the company are growing and to support them the company propose to obtain an additional bank loan of rs 25 lakh . the increase in EBIT is expected to be 20 per cent.

calculate the change in interest coverage ratio after the additional borrowing and comment.

(Ans:- interest coverage ratio = 1.90, interest coverage ratio (revised) = 1.75)

pls explain fig with reason and all calculation

waiting 4 ur reply

Rachit

Ca-Final Article.

565 Points Joined June 2010

i did nothing as such i just increased the EBIT by 30%

As per my opinion Pref. Div Must be calculated on the basis on 12000 as div. +1200as tax on div .

as given in question that is 10%

Rachit

Ca-Final Article.

565 Points Joined June 2010

Dear you didnt mention the rate of new bank rate in your next question...............

Firm EPS
EBIT	2500000	3000000		1.90404	1.85989
LESS INTT.	1313000	1613000
EBT	1187000	1387000	200000
Less tax @ 35%	415450	485450
EAT	771550	901550	130000
Less Pefence Dividend	13200	13200
Earning available to equityshareholders	758350	888350
Equity Shares	4000	4000
EPS	189.5875	222.0875
		221.0875	350000
			560000
			528000
			225000	1313000