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Chapter- 11 : Leverage + Capital Structure

 

Chapter- 11 : Leverage + Capital Structure

 

Chapter- 11 : Leverage + Capital Structure

Q-1 [NU 2015 (Acc) modified] Bilash company’s

Q-1 [NU 2015 (Acc) modified] Jesmin company’s

Q-1 [NU 2015 (Acc) modified] Joly company’s capital

capital structure is composed of common stock capital

capital structure is composed of common stock capital

structure is composed of common stock capital of Tk

of Tk 20,00,000 (20,000 share @ Tk 100 each) and of

of Tk 20,00,000 (20,000 share @ Tk 100 each) and of

20,00,000 (20,000 share @ Tk 100 each) and of 15%

15% debenture of Tk 10,00,000, Corporate tax rate of

15% debenture of Tk 10,00,000, Corporate tax rate of

debenture of Tk 10,00,000, Corporate tax rate of the

the company is 30%. The company’s sales 1,00,000

 

the company is 30%. The company’s sales 1,00,000

 

company is 30%. The company’s sales 1,00,000 units

units @ Tk 20 each. Variable cost @ Tk 8 per unit.

units @ Tk 20 each. Variable cost @ Tk 8 per unit.

@ Tk 20 each. Variable cost @ Tk 8 per unit. Fixed

Fixed cost Tk 6,00,000.

 

Fixed cost Tk 6,00,000.

 

cost Tk 6,00,000.

 

Required:

 

Required:

Required:

 

(i)

What are the degrees of operating leverage, financial leverage and total leverage?

 

(i)

What are the degrees of operating leverage, financial leverage and total leverage?

 

(i)

What are the degrees of operating leverage, financial leverage and total leverage?

(ii)

What will

be

the

impact

on

operating

(ii)

What will be the impact on operating leverage if sale is increased by 30% and

(ii)

What

will

be

the

impact

on operating

leverage if sale is increased by 30% and

 

leverage if sale is increased by 30% and

50%?

50%?

50%?

Q-2 [NU 2016 (Acc) modified] Capital structure of Mainul Ltd is as follows:

Q-2 [NU 2016 (Acc) modified] Capital structure of Tania Ltd is as follows:

Q-2 [NU 2016 (Acc) modified] Capital structure of Rozina Ltd is as follows:

Common stock

 

20,00,000

Common stock

20,00,000

Common stock

 

20,00,000

10% Debt Capital

10,00,000

10% Debt Capital

10,00,000

10% Debt Capital

10,00,000

Total Capital

 

30,00,000

 

Total Capital

30,00,000

Total Capital

 

30,00,000

The company needs additional financing of Tk 10,00,000. This can be financed by the following three alternatives:

 

The company needs additional financing of Tk 10,00,000. This can be financed by the following three alternatives:

 

The company needs additional financing of Tk 10,00,000. This can be financed by the following three alternatives:

(a)

Fully equity stock of Tk 100 each.

 

(a)

Fully equity stock of Tk 100 each.

(a)

Fully equity stock of Tk 100 each.

(b)

Fully 12% Preferred Stock.

 

(b)

Fully 12% Preferred Stock.

(b)

Fully 12% Preferred Stock.

 

(c)

Fully 10% Debenture.

 

(c)

Fully 10% Debenture.

(c)

Fully 10% Debenture.

 

If the company expected EBIT Tk 5,00,000 and tax rate 50%, calculate:

 

If the company expected EBIT Tk 5,00,000 and tax rate 50%, calculate:

 

If the company expected EBIT Tk 5,00,000 and tax rate 50%, calculate:

(i)

EPS;

(i)

EPS;

(i)

EPS;

(ii)

Indifference point of EBIT of alternative (a) and (c).

 

(ii)

Indifference point of EBIT of alternative (a) and (c).

 

(ii)

Indifference point of EBIT of alternative (a) and (c).

 

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