Question

Interest on Debentures ` 4,00,000 preference dividend `

2,00,000 Tax rate is 4 %. If EBIT is ` 15,00,000 the

financial leverage is​

Answer 1

Answer:

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Answer 2

Financial Leverage is 1.36.

Explanation:

Given: Interest on Debentures = 4,00,000

           Preference dividend = 2,00,000

           Tax rate is 4 %.

            EBIT = 15,00,000.

To Find: Financial leverage.

Solution:

Calculation of Financial leverage will be as follows:

EBIT(earning before interest and tax) = ₹15,00,000

- Interest on debenture                         =(₹4,00,000)

EBT(earning before tax)                        = ₹11,00,000

- Tax rate @4%                                       =(₹44,000)

EAT(earning after tax)                           =₹1,056,000

Degree of Financial leverage = EBIT/EBT

                                                 = 1500000/1100000

                                                = 1.36