LEVERAGE

P Q R S
SALES(IN UNITS) 20000 25000 30000 40000
SELLING PRICE 15 20 25 30
VARIABLE COST 10 15 20 25
FIXED COST 15000 40000 50000 60000
INTEREST 30000 25000 35000 40000
TAX 0.3 0.3 0.3 0.3

NUMBER OF SHARES 5000 9000 10000 12000

SOLUTION:
SALES 300000 500000 750000 1200000
VARIABLE COST 200000 375000 600000 1000000

CONTRIBUTION MARGIN 100000 125000 150000 200000

EBIT 85000 85000 100000 140000
PBT 55000 60000 65000 100000
TAX 16500 18000 19500 30000
PAT 38500 42000 45500 70000

OPERATING LEVERAGE 1.176471 1.470588 1.5 1.428571 CONTRIBUTION MARGIN/EBIT

FINANCIAL LEVERAGE 1.545455 1.416667 1.538462 1.4 EBIT/PBT
COMBINED LEVERAGE 1.818182 2.083333 2.307692 2 OPERATING*FINANCIAL
EARNING PER SHARE 7.7 4.666667 4.55 5.833333 PAT/NO. OF SHARES
UTION MARGIN/EBIT

NG*FINANCIAL
WACC
SOURCES OF CAPITAL WEIGHT COST WEIGHT*COST
EQUITY CAPITAL 700000 20% 140000
DEBENTURE 600000 10% 60000
PREFERENCE SHARES 300000 15% 45000
RETAINED EARNING 400000 20% 80000
TOTAL 2000000 325000

WACC 0.1625 SUM(WEIGHT*COST)/SUM(WEIGHTS)

 10%
YEAR CASH FLOW PVF @ 10% PV YEAR
0 -2500 1 -2500 NPV ₹ 225.53 0
1 900 0.909 818.1 1
2 800 0.826 660.8 2
3 700 0.751 525.7 3
4 600 0.683 409.8 4
5 500 0.621 310.5
NPV NPV(%AGE,+ve flows)+-veflow
YEAR CASH FLOWS IRR IRR(CASH FLOWS)
0 -16000
1 8000
2 7000
3 6000

IRR 15.8%
 10%
cash outlay PVF PV
-100000 1 -100000 NPV ₹ 12,383.03
40000 0.909 36360
30000 0.826 24780
50000 0.751 37550
20000 0.683 13660

NPV(%AGE,+ve flows)+-veflow
IRR(CASH FLOWS)
AS PER NOI APPROACH AS PER NI APPROACH

GIVEN: EBIT 100000 GIVEN: EBIT 100000

10% DEBT 500000 10% DEBT 500000
KO 12.50% KE 0.125

SOLUTION: EBIT 100000 EBIT 100000

KO 0.125 OVERALL COC (WACC) SOLUTION: D 500000
V 800000 VALUE OF FIRM INTEREST 0.1
D 500000 DEBT INTEREST 50000
E 300000 EQUITY EAE 50000
INTEREST 0.1 KE 0.125
INTEREST 50000 E 400000
EAE 50000 V 900000
KE 0.166667 COST OF EQUITY CAPITAL KO 0.111111
V=D+E AND EBIT/KO KO=EBIT/V
E=V-D AND EAE/KE KE=EAE/E
EAE= EBIT- INTEREST V=D+E
KE= EAE/E EAE=EBIT-INTEREST
KO= EBIT/V
 1 2 3 4 5
COST 90000 SALVAGE
WORKING CAP 20000 LIFE
INITIAK OUTFLOW -110000 TAX
REV. 28000 29000 28000 32000 34000 COC
DEPRECIATION 16000.00 16000.00 16000.00 16000.00 16000.00
PBT 12000.00 13000.00 12000.00 16000.00 18000.00
TAX 4800 5200 4800 6400 7200
PAT 7200.00 7800.00 7200.00 9600.00 10800.00
CFAT 23200.00 23800.00 23200.00 25600.00 26800.00
SALVAGE VALUE 10000
WORKING CAPITAL 20000
TERMINAL 56800.00

NPV ₹ 944.31
10000
5
0.4
10%