The capital structure of Radhika Ltd. consists of equity share capital of Rs 10,00,000 (the par value of one equity share is Rs 100) and Rs 10,00,000 of 10% debentures. The unit sales increased by 20 per cent from 1,00,000 units to 1,20,000 units, the selling price is Rs 10 per unit, variable costs amount to Rs 6 per unit and fixed expenses amount to Rs 2,00,000. The income tax rate is 35 per cent.   

1. You are required to calculate:   

(i) The percentage increase in EPS,   

(ii) The degree of financial leverage at 1,00,000 and 1,20,000 units, 

(iii) The degree of operating leverage at 1,00,000 and 1,20,000 units     

2. Comment on the behaviour of operating and financial leverage in relation to increase in production from 1,00,000 to 1,20,000.

Answer rating: 100% (QA)

1 EPS PAT DDE At 100000 units EPS 1000000 10000001000000 EPS 0 At 120000 units EPS 1200... View the full answer