Neel Ltd. has supplied the following data: Operating Leverage 2.5; Financial Leverage 3; EPS ₹30; market price per share ₹225; and capital 20,000 shares. It is proposed to raise a loan of ₹50,00,000 @ 18% p.a. for expans

1. Current Situation: Earnings after tax (EAT) = EPS × No. of shares = ₹30 × 20,000 = ₹6,00,000 PE ratio = Market value per share / EPS = ₹225 / ₹30 = 7.5 EAT = EBT - Tax. Since tax rate is 50%, EAT = 0.50 × EBT. So, EBT = EAT / 0.50 = ₹6,00,000 / 0.50 = ₹12,00,000 Financial Leverage (DFL) = EBIT / EBT = 3. Therefore, EBIT = DFL × EBT = 3 × ₹12,00,000 = ₹36,00,000 Interest = EBIT - EBT = ₹36,00,000 - ₹12,00,000 = ₹24,00,000 Operating Leverage (DOL) = Contribution / EBIT = 2.5. Therefore, Contribution = DOL × EBIT = 2.5 × ₹36,00,000 = ₹90,00,000 Fixed Cost = Contribution - EBIT = ₹90,00,000 - ₹36,00,000 = ₹54,00,000 Current Income Statement: Contribution ₹90,00,000 Less: Fixed cost ₹54,00,000 EBIT ₹36,00,000 Less: Interest ₹24,00,000 EBT ₹12,00,000 Less: Tax (50%) ₹6,00,000 EAT ₹6,00,000 2. After 25% increase in sales (Expansion): New Contribution = ₹90,00,000 × 1.25 = ₹1,12,50,000 New Fixed Cost = ₹54,00,000 (original) + ₹3,00,000 (additional) = ₹57,00,000 New Interest: Original interest ₹24,00,000 + Interest on new loan (18% of ₹50,00,000) = ₹24,00,000 + ₹9,00,000 = ₹33,00,000 Income Statement After Expansion: Contribution ₹1,12,50,000 Less: Fixed cost ₹57,00,000 EBIT ₹55,50,000 Less: Interest ₹33,00,000 EBT ₹22,50,000 Less: Tax (50%) ₹11,25,000 EAT ₹11,25,000 EPS after expansion = EAT / No. of shares = ₹11,25,000 / 20,000 = ₹56.25 Market Price per Share (MPS) after expansion = EPS × PE ratio = ₹56.25 × 7.5 = ₹421.875