Question

A project has following estimated data: Price - $60 per unit; variable cost = $30 per unit; = Fixed cost = $100,000; Company has borrowings of $100,000 at a rate of 10%. Calculate the combined leverage of the project when units sold are 10,000 units​

Answer 1

Answer:

Price - $60 per unit; variable cost = $30 per unit; = Fixed cost = $100,000; Company has borrowings of $100,000 at a rate of 10%. Calculate the combined leverage of the project

Answer 2

Answer:

Explanation:

Sales 6,00,000

Less: Variable cost 3,00,000

Contribution 3,00,000

Less: Fixed cost 1,00,000

EBIT 2,00,000

Less: Interest 10,000

EBT 1,90,000

(a) Operating Leverage = Contribution/EBIT = 3,00,000/2,00,000 = 1.5 Times

(b) Financial Leverage = EBIT/EBT = 2,00,000/1,90,000 = 1.05 Times

(c) Combined Leverage = OL × FL = 1.5 × 1.05 = 1.57 times