Calculate the Operating Leverage, Financial Leverage and Combined Leverage from the

following data under situation I and II and Financial Plan A & B.

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Installed Capacity 4000 units

Actual Production & Sales 75% of the Capacity

Selling Price Rs. 30 per unit

Variable Cost Rs. 15 per unit

Fixed Cost

Under Situation I Rs. 15,000

Under Situation II Rs. 20, 000

Capital Structure

Particulars Financial Plan

A B

Equity 10,000 15,000

Debt (rate of Interest at 20%) 10,000 5,000

20,000 20,000

To calculate operating leverage, financial leverage, and combined leverage, we’ll first need to calculate the relevant values. Let’s define the terms:

- (Q) = Quantity of units produced and sold
- (P) = Selling price per unit
- (V) = Variable cost per unit
- (FC) = Fixed costs
- (EBIT) = Earnings Before Interest and Taxes
- (EBT) = Earnings Before Taxes

**Given Data:**

- Installed Capacity = 4,000 units
- Actual Production & Sales = 75% of the Capacity ( (Q = 0.75 \times 4,000) units)
- Selling Price ((P)) = Rs. 30 per unit
- Variable Cost ((V)) = Rs. 15 per unit
- Fixed Cost ((FC)) under Situation I = Rs. 15,000
- Fixed Cost ((FC)) under Situation II = Rs. 20,000
- Equity = Rs. 10,000 for Financial Plan A, Rs. 15,000 for Financial Plan B
- Debt = Rs. 10,000 with an interest rate of 20% for Financial Plan A, Rs. 5,000 for Financial Plan B

Now, let’s calculate the values step by step:

### Situation I:

**Operating Leverage (OL):**

[ OL = \frac{Q(P – V)}{Q(P – V) – FC} ]**Financial Leverage (FL):**

[ FL = \frac{EBIT}{EBT} = \frac{Q(P – V) – FC}{Q(P – V) – FC – (Debt \times Interest)} ]**Combined Leverage (CL):**

[ CL = OL \times FL ]

### Situation II:

Repeat the calculations for Situation II using the given data under Situation II.

### Financial Plan A:

**Operating Leverage (OL):**

[ OL = \frac{Q(P – V)}{Q(P – V) – FC} ]**Financial Leverage (FL):**

[ FL = \frac{EBIT}{EBT} = \frac{Q(P – V) – FC}{Q(P – V) – FC – (Debt \times Interest)} ]**Combined Leverage (CL):**

[ CL = OL \times FL ]

### Financial Plan B:

Repeat the calculations for Financial Plan B using the given data under Financial Plan B.

Now, plug in the values into the formulas and calculate the leverages for each scenario and financial plan.