##### SOLVED NUMERICAL PROBLEMS
1. 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%

2. 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

1. 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%

2. 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

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