XYZ Ltd. selling price of $60 per unit. Its variable unit costs are $20 and fixed costs amount to $10,00,000. It finances all its assets by equity funds. It pays 40% tax on its income. ABC Ltd. is identical to XYZ Ltd. except in respect of the pattern of financing. The latter finances its assets 50% by equity and 50% by debt,the interest on which amounts to $2,00,000. Determine operating, financial and combined the leverages if 1,00,000 units are sold for both
XYZ Ltd. selling price of $60 per unit. Its variable unit costs are $20 and fixed costs amount to $10,00,000. It finances all its assets by equity funds. It pays 40% tax on its income. ABC Ltd. is identical to XYZ Ltd. except in respect of the pattern of financing. The latter finances its assets 50% by equity and 50% by debt,the interest on which amounts to $2,00,000. Determine operating, financial and combined the leverages if 1,00,000 units are sold for both
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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XYZ Ltd. selling price of $60 per unit. Its variable unit costs are $20 and fixed costs amount to $10,00,000. It finances all its assets by equity funds. It pays 40% tax on its income. ABC Ltd. is identical to XYZ Ltd. except in respect of the pattern of financing. The latter finances its assets 50% by equity and 50% by debt,the interest on which amounts to $2,00,000.
Determine operating, financial and combined the leverages if 1,00,000 units are sold for both the firms.
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