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    Question

    A company has Sales = ₹40,00,000, Variable cost =

    ₹24,00,000, Fixed cost = ₹8,00,000, Interest = ₹2,00,000. Calculate Combined Leverage.
    A 2.0 Correct Answer Incorrect Answer
    B 2.5 Correct Answer Incorrect Answer
    C 3.0 Correct Answer Incorrect Answer
    D 2.6 Correct Answer Incorrect Answer
    E 1.5 Correct Answer Incorrect Answer

    Solution

    EBIT = Sales – VC – FC = 40 – 24 – 8 = ₹8,00,000. Contribution = 40 – 24 = ₹16,00,000. Operating leverage = Contribution/EBIT = 16/8 = 2. Financial leverage = EBIT / (EBIT – Interest) = 8 / (8 – 2) = 8/6 = 1.33. Combined leverage = 2 × 1.33 = 2.6.

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