The following data is available for Balram Industries : Sales ₹2,00,000 Variable cost @ ₹30 ₹60,000 Contribution ₹1,40,000 Fixed cost ₹1,00,000 EBIT ₹40,000 Interest ₹5,000 Profit before tax ₹35,000 Find out (i) Using th

CS Professional · Financial, Treasury and Forex Management · PYQS · June 2015
The following data is available for Balram Industries : Sales ₹2,00,000 Variable cost @ ₹30 ₹60,000 Contribution ₹1,40,000 Fixed cost ₹1,00,000 EBIT ₹40,000 Interest ₹5,000 Profit before tax ₹35,000 Find out (i) Using the concept of financial leverage, by what percentage will the taxable income increase if EBIT increases by 6%.

Answer & Explanation:

Degree of Financial leverage (DFL) = EBIT / PBT = ₹40,000 / ₹35,000 = 1.1429 (i) If EBIT increases by 6%, the taxable income would increase by 6 x 1.1429 = 6.86%

Topics: Capital Structure

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