leverage, Financial Management

ABC Ltd. Produces electronic components with a selling price per of Rs.100. Fixed cost amount to
Rs.2,00,000/-
5000 units are produced and sold each year. Annual profits amount to Rs.50,000/-. The company’s all equity financed assets are Rs.5,00,000/-. The company proposes to change its production process, adding Rs.4,00,000/- to investment and Rs. 50,000/- to fixed operational costs.
The consequences of such a proposal are:
(i) Reduction in variable cost per unit by Rs.10/-
(ii) Increase in output by 2000 units.
(iii) Reduction in selling price per unit to Rs.95/-
(a) Assume an average cost of capital 10%. Examine the above proposal and advise whether or not the company should make the change.
(b) Also work out the degree of operating leverage.
Posted Date: 11/23/2012 10:42:28 AM | Location : USA







Related Discussions:- leverage, Assignment Help, Ask Question on leverage, Get Answer, Expert's Help, leverage Discussions

Write discussion on leverage
Your posts are moderated
Related Questions
Changes in the bond value is inversely related to the change in the interest rates. If an investor holds a long bond position, he would incur loss if the in

waht are the basic functions of profit & loss account

Explain how to compute the overall balance and discuss its significance. The overall BOP is defined by computing the cumulative balance of payments involving the current account,

Under what circumstance would the U.S. dollar and the Canadian dollar be said to have achieved purchasing power parity? The U.S. dollar and the Canadian dollar would be referred

Example: - Two firm U as well as L is identical in every respect except that U is unlevered and L is levered. L has Rs. 20Lakh of 8% debt outstanding. The net operating income of b

Insider Trading Insider trading refers to dealing in securities by persons who are privy to specific information of companies. This possession of confidential information gives

Bond valuation would be relatively simple if interest rates exhibit little day-to-day volatility. One could value a bond by discounting each of its cash flows at

MARGINAL ANALYSIS It is difficult to develop the conditional profit table when there are a large number of scenarios and possible actions. The marginal analysis approach sides

Assembling the Divestiture Team: Divestment of a business requires a team of functional experts under the direction of an experienced project manager. The first and foremost ac

there are 3 compaies i have to find out the price of equity share by using walters and gordons model.