Ebit-eps

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Dhanendra Goyal (Querist)

15 May 2013 Dear sir please give me solution for my Que:
A firm has sales of `75,00,000 variable cost of `42,00,000 and fixed cost of
`6,00,000.It has a debt of `45,00,000 at 9% interest and equity of `55,00,000. At what level
of sales, the EBIT of the firm will be equal to zero?
And at what level of Sales, the EBT of the firm will be equal to zero?
Please Give detail calculation!

Ganeshbabu K

Ganeshbabu K (Expert)

15 May 2013 sales-variable cost=contribution
contribution-fixedcost=ebit

so EBIT=27 lakhs

int=405000
ebt=22,95,000

1)so if (sales = fixedcost+variable cost) for getting ebit as 0. so it is 48lakhs

2)add interest to above case
=48lakh+405000
=5205000

hope it is cleared..all u have to do is analyse ur self how to use the base equation which is given above

Dhanendra Goyal

Dhanendra Goyal (Querist)

15 May 2013 Dear Ganesh ji (I have calculated same solution as given by u) But solution given in suggested ans. sheet (Please see)
>>>
EBIT to became zero means 100% reduction in EBIT.
F. Leverage = EBIT/EBT

2700000/2295000= 1.1764

O. Leverage 3300000/2700000 = 1.2222

Combined Leverage = 1.1764 x 1.2222= 1.438
Sales have to drop by 100/1.438 = 69.54%
New Sales will be = 7500000 x (1-0.6954) = ` 2284500( approx)

Ganeshbabu K

Ganeshbabu K (Expert)

15 May 2013 Oh...i made a mistake

see we have taken variable cost also as fixed cost if we are deducting it from deducted sales..
this method will be holds good if we have unit wise details of sale price and variable cost is given,

so solution given was correct, i have given blind solution..ignore it and follow suggested answers and take care of it exams

Dhanendra Goyal

Dhanendra Goyal (Querist)

15 May 2013 Dear Ganesh!
My dout is about how combined leverage connected with sale to calculate EBIT

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