Q1 Karachi Jam Manufacturers is a leading player in Juice and Jam industry. It sells exotic flavored Jams at Rs. 100 each. The firm gets its Fruits in bulk from different suppliers on Just in time basis which reduces its investment in inventories. After procurement of fruits, company later process these fruits to create its Jams. The firm has variable costs of Rs. 1,600,000 on sales of 32,000 Jams. Fixed costs are Rs. 800,000. Operating income (EBIT) this year is Rs. 800,000 and after-tax net income is Rs. 300,000. Interest expense is Rs. 200,000. The current EPS of the company is Rs 15. Company Assets are Rs. 1,000,000 with Rs. 200,000 in Equity. All debt is long-term debt and bears interest.

 a. Suppose that EBIT was to decline 10 percent next year. What would be the percentage decline in earnings per share (EPS)? 

b. Suppose that EBIT was to increase 10 percent next year. What would be the percentage decline in earnings per share (EPS)? 

c. What is the tax for the year and the tax rate for the firm? 

d. What is the cost of borrowing for the firm? 

e. What is the cost of Equity for the firm, if it pays all EPS as dividends? There is no growth expected in dividends. The market price of a share is Rs 30. 

f. What is WACC for the firm, based on current situation?

Answer rating: 100% (QA)

No of share 3000001520000 shares a ans tax rate previous year EBIT 800000 interest expenses 200000 p... View the full answer