General Electronics produces electronic communications equipments. In 2014 the company had Tk. 200,000 earnings before interest and taxes. On January 1, 2014 the company borrowed Tk. 400,000 at a rate of interest of 10 percent. The company had no previous debt and its tax rate is 40 percent.

1.What was the degree of financial leverage prior to 2014?

2.What was the 2014 degree of financial leverage using the actual earnings figures?

3.In 2014 what percentage change in after tax earnings per share would result from a 50 percent increase in EBIT?

4.In 2014 what percentage increase in EBIT would bring about a 20 percent increase in EPS?

5.In 2014 the company sold 20,000 items at Tk. 60 per item. The fixed operating cost was Tk. 3600,000, and the total variable operating cost was Tk. 400,000. What was the degree of combined leverage using the actual 2014 earnings figures?

6.Compute DOL and check the relation DCL = DOL X DFL using the data and results of ii and v.

P&G has EBIT of $67,500. Interest costs are $22,500 and the firm has 15,000 shares of common stock outstanding. Assume a 40% tax rate.

7.Calculate the financial leverage for the firm.

8.If the firm also has 1,000 shares of preferred stock paying a $6 annual dividend per share, what is the DFL?

Play-More Toys produces beach balls, selling 400,000 balls a year. Each ball produced has a variable operating cost of Tk. 7.5 and sells for Tk. 10. Fixed operating costs are Tk. 280,000. The firm has annual interest charges of Tk. 60,000, preferred dividends of Tk. 20,000 and a 40% tax rate.

9.Calculate the operating breakeven point in unit.

10.Calculate DOL, DFL and DTL