Re: [ vuZs.net ] define all steps plzz and markd steps??

Your calculations are wrong here is the complete process of this Question:

 

Applicable to Both Firms              Firm A's Data            Firm LD's Data         

Assets Rs. 3,000,000                        Debt ratio 70%                 Debt ratio 20%

EBIT    Rs.500, 000                           Int. rate 12%                 Int. rate 10%

Tax rate  35%

 

 

 

For company A  70% leverage so equity will be 30% of 3,000,000 = 900,000

EBIT =                                                                 500,000

Less: Interest (12% of 500,000) =                     (60,000)

EBT                                                                      440,000        

Less: Tax  (35% of EBT(440,000))                   (154,000)        

Net income (Note)                                    286,000                

Expected ROE (=NI/Equity) 286,000/ (900,000) = 31.78%

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