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Sales ₹20 lakh; VC ₹12 lakh; Fixed Cost ₹4 lakh; Interest ₹2 lakh. DCL is:
A1.5
B4.0
C2.5
D2.0
Answer & Solution
Correct answer: B. 4.0
1. Contribution = 20 − 12 = 8 lakh; EBIT = 8 − 4 = 4 lakh; EBT = 4 − 2 = 2 lakh.
2. DOL = 8/4 = 2; DFL = 4/2 = 2.
3. DCL = DOL × DFL = 2 × 2 = 4.
_Source: ICAI BoS CA Inter Paper 6A, Ch 6 "Financing Decisions — Leverages", §5_
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