Magma Ltd. is a manufacturing industry which has a mix of equity and debt to finance its business. The company is growing at a considerable rate prompting the management to go for expansion. The company is considering va

Magma Ltd. is a manufacturing industry which has a mix of equity and debt to finance its business. The company is growing at a considerable rate prompting the management to go for expansion. The company is considering various alternatives to raise funds for the same. The capital structure of Magma Ltd. is as follows: Particulars Amount (₹) 12% Debentures (first issue) 3,00,000 13% Debentures (second issue) 2,00,000 10% Cumulative Preference Shares 2,50,000 Equity Shares (Face Value of ₹ 10 per share) 6,00,000 Retained Earnings 1,50,000 Additional Information: (1) Equity shares are sold in the market at ₹ 25 per share. The company is contemplating the declaration of dividend of ₹ 3 per share at the end of the current financial year. The company has a practice of paying all earnings in the form of dividend. (2) ₹ 100 per debenture (first issue) redeemable at par has 2% floatation cost and 8 years of maturity. The market price per debenture is ₹ 120. (3) The second issue of debentures (₹ 100 each) is redeemable after 5 years and are currently selling at ₹ 90 per debenture. (4) ₹ 100 per preference share redeemable at par has 3% floatation cost and 10 years of maturity. The market price per preference share is ₹ 108. (5) The tax rate applicable to the company is 30%. (6) The shareholder's tax liability may be assumed as 25% whereas the capital gain tax is 20%. The CFO of the company is keen at understanding the cost of capital. Accordingly, you are appointed to complete the following tasks: (3) Assuming the company has sales of ₹ 20 lakh, variable cost of ₹ 12 lakh and fixed cost of ₹ 5 lakh (excluding of interest), calculate operating leverage, financial leverage and combined leverage.