Question: Calculate Operating Leverage and Financial Leverage under situations X, Y and Z and financial plan 1,2 and 3 respectively form the following information relating to
Calculate Operating Leverage and Financial Leverage under situations X, Y and Z and financial plan 1,2 and 3 respectively form the following information relating to the operation and capital structure of P, Q and R limited. Also, find out the combinations of operating and financial leverage which give the highest value and the least value.
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|
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| Installed Capacity(Units) | 1200 |
| Actual Production and Sales (Units) | 800 |
| Selling Price per unit | 15 |
| Variable Cost per unit | 10 |
| Fixed Cost |
|
| Situation X | 1000 |
| Situation Y | 2500 |
| Situation Z | 5000 |
| Total Capital Required | 10,000 |
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Capital Structure
|
| 1 | 2 | 3 |
|
| Equity | 50% | 75% | 25% |
|
| Debt | 50% | 25% | 75% |
|
| Cost of Debt |
| 12% | 15% |
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