19 May 2019
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 with explaination
06 June 2019
pv ratio = (75,00,000-42,00,000)/75,00,000 = 0.44 sales at EBIT = zero i.e. break even sales = fixed cost / pv ratio = 6,00,000/0.44 =13,63,636.36 sales at EBT = zero = (Fixed cost+interest)/pv ratio = (6,00,000+405000)/.44= 22,84,090.91
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