Can anyone please help me with this question :
A firm has total capital of Rs 12 Lacs & a Debt - Equity ratio of 2:1.Its DFL is 1.67 times.If interest on debt is Rs 1,20,000,find out:-
a) Rate of Interest on Debt (Ans : 15%)
b) EAT , if tax rate is 40% (Ans : 1,08,000)
c) EPS , if face value is Rs10 per share (Ans : Rs 2.70)
d) ROI (Ans : 25%)
| Originally posted by : Neeti | ||
 |
Total capital = 12,00,000 Debt : Equit =2:1 Therefore Debt = 12,00,000 x 2/3 = 8,00,000
If interest = 1,20,000 then Rate of interest = 1.2L / 8L = 15% |
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Hi,
(a) Parveen already given the answer very well.
(b) Degree of Fin. leverage = EBIT / (EBIT-Interest) = EBIT / (EBIT - 120000) = 1.67 (given)
EBIT = 300000
EBT = EBIT - Interest = 300000 - 120000 = 180000
EAT = EBT - 40% = 180000 - 40% = 108000
(c) EPS = EAT / shares = 108000 / 40,000 = 2.7
(d) ROI = EBIT / Total capital invested = 300000 / 1200000 = 25%
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