August 2011
Beginner
547 pages
16h 12m
English
Content preview from Fundamentals of Financial Management, Third EditionBecome an O’Reilly member and get unlimited access to this title plus top books and audiobooks from O’Reilly and nearly 200 top publishers, thousands of courses curated by job role, 150+ live events each month,
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SOLVED NUMERICAL PROBLEMS
- Find out the leverage ratio if the capital structure has Rs 4,00,000 equity and Rs 1,60,0 debt.
Solution
Leverage ratio = Debt/(equity + debt)
1,60,000/(4,00,000 + 1,60,000) = 0.2857 = 28.57%
- A company has 5,000 shares of Rs 100 each. It goes for capital restructuring and issues debentures for Rs 2,00,000 to buy back the shares. If the interest rate on debentures is 10% with no tax, find: (a) the leverage ratio after restructuring, and (b) EPS with an EBIT of Rs 1,20,000.
Solution
- Equity = Rs 5,00,000 – 2,00,000 = Rs 3,00,000
Debt = Rs 2,00,000
Leverage ratio = 2,00,000/(3,00,000 + 2,00,000) = 0.40 = 40%
- EBIT = Rs 1,20,000
Less interest @ 10% = Rs 20,000
EBT/NIAT = Rs 1,00,000
EPS = Rs 1,00,000/3,000 = Rs 33.33
- Equity = Rs 5,00,000 – 2,00,000 = Rs 3,00,000
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