The following information relates to the operations and capital structure of Anding'o Company Ltd. Installed capacity 1200 units Actual production 800 units Selling price/unit Sh.15Variable cost/unit Sh.10Fixed cost Sh .Situation A 1000Situation B 2000Situation C 3000Capital Structure Financial Plan1 2 3Sh. Sh. Sh. Equity 15,000 17,500 12,500Debt 15,000 12,500 12,500Cost of debt (For all plans) 12%Tax rate 30%

REQUIRED:-Determine the degree of combined leverage of the financial plans above and give your advice to the managers of anding'o ltd.

Answer rating: 100% (QA)

The degree of combined leverage DCL measures the sensitivity of earnings before interest and taxes EBIT to changes in sales It is calculated as the pe... View the full answer