# Leverages – Financial and Strategic Management MCQ

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Leverages – Financial and Strategic Management MCQ

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Calculate the degree of financial leverage (DFL) for a firm when its EBIT is ₹ 20,00,000. The firm has ₹ 30,00,000 in debt that costs 10% annually. The firm also has a 9%, ₹ 10,00,000preferred stock issue outstanding. The firm pays 40% in taxes.

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A firm has a DFL of 3.5. What does this tell us about the firm?

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He has a DOL of 3.5 at Q units. What does this tell us about the firm?

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Operating leverage 2.5; financial leverage 3; EPS ₹ 30; the market price per share ₹ 225; and capital 20,000 shares. It is proposed to raise a loan of ₹ 50,00,000 @18% for expansion. After expansion, sales will increase by 25% and fixed cost by ₹ 3,00,000.Work out the market price per share after expansion, assuming tax rate @ 50%.

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ABC Ltd. has an average selling price of ₹ 10 per unit. Its variable unit costs are ₹ 7 and fixed costs amount to ₹ 1,70,000. It finances all its assets with equity funds. It pays 30% tax on its income. QPR Ltd. is identical to ABC Ltd. except in respect of the pattern of financing. The latter finances its assets 50% by equity and 50% by debt, the interest on which amounts to ₹ 20,000.

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Which of the following company has greater business risk? 7 / 50

Total assets of Q Ltd. are ₹ 6,00,000. The total assets turnover ratio is 2.5 times. The fixed operating costs are ₹ 2,00,000 and the variable operating cost ratio is 40%. The income tax rate is 30%. No. of equity shares are 18,000. Determine the likely level of EBIT if EPS is ₹ 6.

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The total assets of Honey Well Ltd. are ₹ 6,00,000. The total assets turnover ratio is 2.5 times. The fixed operating costs are ₹ 2,00,000 and the variable operating cost ratio is 40%. The income tax rate is 30%. Calculate operating, financial, and combined leverage?

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What percentage will taxable income increase, if the sales increase by 6%

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What percentage will EBIT increase, if there is a 10% increase in sales?

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The following data is available for Y Ltd.

 Variable cost (% of sales) 75% Interest expense ₹ 30,000 DOL 6:1 DFL 4:1 Corporate tax rate 30%Contribution = ?

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The following data is available for Alpha Ltd.

 Financial leverage 2:1 Operating leverage 3:1 Interest charges ₹ 20 lakh Corporate tax rate 40% Variable (% of sales) 60%Sales =?

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From the following data of Abhishek Ltd., compute the operating leverage, financial leverage, combined leverage.

 ₹ EBIT 10 Lakh Profit before tax (PBT) 4 lakh Fixed cost 6 lakh

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ThFixed Cost:
e contribution of a firm is ₹ 4,000.Situation A ₹ 1,000
Situation B ₹ 2,000
Situation C ₹ 3,000
Compute the operating leverage for the three situations.

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Variable cost = ₹ 2,40,000
ESales = ₹ 4,00,000
BOperating leverage = ?
IT
= ₹ 40,000

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Combined leverage = 3.5
Operating leverage = 2EBIT = ₹ 2,80,000
Interest = ₹ 40,000
Tax rate = 50%.
The capital structure of the company consists of equity shares and preference shares.
Amount of Preference Dividend =?

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Total assets of Alpha Company sire ₹ 3,00,000. The company’s total assets turnover ratio is 3, its fixed operating cost is ₹ 1,50,000 and its variable operating cost ratio is 50%. The income-tax rate is 50%. It also has long-term debts of ₹ 1,20,000 on which interest @ 10% is payable. Operating, Financial & Combined Leverages of the company is

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Operating leverage is 7 and financial leverage is 2.2858. How much change in sales will be required to bring 7096 change in EBIT?

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If stiles increase by 6% taxable income Le. PAT and EPS will increase by 24%.Combined leverage must be

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If there is a 10% increase in sales, EBIT increases by 35% and if sales increase by 6%, taxable income will increase by 24%. Operating leverage must be

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Financial leverage is 2.5. This means a 10% change in EBIT will cause

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A company has sales of ₹ 1 lakh. The variable costs are 40% of the sales while the fixed operating costs amount to ₹ 30,000. The amount of interest on long-term debts is ₹ 10,000. You are required to calculate the combined leverage.

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If combined leverage is 2 and financial leverage is 1.25 then operating leverage will be

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Output (units) = 3,00,000Fixed cost = ₹ 3,50,000
Unit variable cost = ₹ 1.00
Interest expenses = ₹ 25,000
Unit selling price = ₹ 3.00
Applicable tax rate is 35%
Calculate Combined Leverage.

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Output (units) = 3,00,000
Fixed cost = ₹ 3,50,000
Unit variable cost = ₹ LOO
Interest expenses = ₹ 25,000
Unit selling price = ₹ 3.00
Applicable tax rate is 35%
Calculate Operating Leverage.

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Operating leverage may be defined as:

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Assertion (A):High operating leverage shows a higher burden of fixed cost.
Reason (R):As fixed cost goes on increasing EBIT reduces.

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Read the following statement.(i) With the increase in fixed cost operating leverage diminishes.
(ii) Networking Capital is the excess of current assets over current liabilities.
(iii) Greater the size of the business unit larger will be the requirement of working capital.
(iv) Working Capital is also known as circulating capital.
Which of the above statement is correct?

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Which one of the following is correct?(i) Liquidity ratios measure’s long-term solvency of a concern.
(ii) Inventory is a part of liquidity assets.
(iii) Financial leverage is related to business risk.
(iv) The number of gross assets is equal to net capital employed.
Select the correct answer from the options given below:

30 / 50

Earnings to equity shareholders (EPS) will fluctuate violently if

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High financial leverage is not good as it indicates the large content of

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Which of the following formulas represents the correct calculation of the degree of financial leverage?

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Which of the following formulas represents a correct calculation of the degree of operating leverage?

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If financial leverage is 2.5, this means that

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The operating leverage indicates the impact of changes in sales on

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Lower financial leverage is related to the use of additional

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Higher operating leverage is related to the use of additional

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Operating leverage is directly__ to business risk.

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A firm has a DOL of 4.5 at Q units.What does this tell us about the firm?

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Operating leverage depends onI. ContributionII. Interest costIII. Fixed costIV. Volume of salesV. EPSVI. Profit after tax (PAT)Select the correct answer from the options given below:

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High operating leverage indicates

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The measure of business risk is

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The degree of total leverage can be applied in measuring the change in

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A firm’s degree of total leverage (DTL) is equal to its degree of operating leverage its degree of financial leverage (DFL).

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In the context of operating leverage break-even analysis, if the selling price per unit rises and all other variables remain constant, the operating break-even point in units will:

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There is no operating leverage if there is no

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Operating leverage indicates the tendency of operating profits (EBIT) > to vary disproportionately with zj

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Which of the following are not commonly used measures of leverage in financial analysis?

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The term Leverage in general refers to a

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