Can any one help compute degrees of operating leverage, financial leverage and combined leverage.? - financial obligations ratio
FASTRON Inc. expects sales of silicon ships 60 million U.S. dollars this year. Since these
is a major capital-intensive firms, fixed costs of operation are 20 million euros. The
Variable cost ratio is 40 percent. The debts of the company consists of a 4 million,
Bank loans amounting to 10 percent and a loan of 20 million U.S. dollars at an interest rate of 11 percent.
FASTRON has 1 million shares outstanding, and his marginal tax rate
is 40 percent.
Tuesday, January 19, 2010
Financial Obligations Ratio Can Any One Help Compute Degrees Of Operating Leverage, Financial Leverage And Combined Leverage.?
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= EBIT (Sales - VC - FC) = (60 - 24 to 20) = 16
Interest = .10 (4m) + .11 (20m) = (400k + 2,2) = 2.6 million
a. DOL = (Sales - variable costs) / EBIT
= [60 - (.4) (60)] / 16
= 36/16
= 2.25
b. DFL = EBIT / (EBIT - I)
= 16 / (16 - 2.6)
= 1.194
c. DCL = DOL * DFL
= (2.25) (1.194)
= 2.69
d NI = (EBIT - I) - Taxes
= (16 -2.6) (1 -. 40)
= 8,04 m
EPS = 8.04m/1m
= 8.04
If sales decline by X percent decline in EPS
(Degrees) of the total debt * 'X percent. "
IE If the sales fall 5%, EPS is expected to decrease
DCL * 5% = (2.69) (.05)
This new EPS = 8,04 - (8.04) (2.69) (.05)
= 6.96
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