There are two companies B and D. Total contribution of capital is Rs.40 lakhs each. The proportion of equity in the total capital of the company B is Rs. 10 lakhs and debt is Rs.30 lakhs. While in company D, the total equity capital is Rs.40 lakhs, sourced through equity. EBIT is Rs.8 lakhs, the interest rate on debt is 10% and the tax rate is 30%. Which company enjoys the favourbale financial leverage?

There are two companies B and D. Total contribution of capital is Rs.4

1.	There are two companies B and D. Total contribution of capital is Rs.40 lakhs each. The proportion of equity in the total capital of the company B is Rs. 10 lakhs and debt is Rs.30 lakhs. While in company D, the total equity capital is Rs.40 lakhs, sourced through equity. EBIT is Rs.8 lakhs, the interest rate on debt is 10% and the tax rate is 30%. Which company enjoys the favourbale financial leverage?
Answer» There are two companies B and D. Total contribution of capital is Rs.40 lakhs each. The proportion of equity in the total capital of the company B is Rs. 10 lakhs and debt is Rs.30 lakhs. While in company D, the total equity capital is Rs.40 lakhs, sourced through equity. EBIT is Rs.8 lakhs, the interest rate on debt is 10% and the tax rate is 30%. Which company enjoys the favourbale financial leverage?