1) Assuming that a firm pays 50% tax rate, calculate the cost of capital in the following cases:

a) 8.5% preference shares sold at par

b) A perpetual bond sold at par, coupon rate of interest being 7%.

c) A ten year 8%, Rs.1000 bond sold at Rs.950 less 4%, underwriting commission.

2) A firm is considering an investment proposal of Rs.40,000 with 40% debt and 60% equity. The required rate of return is 20% for equity and 8% for debt. Ignore tax effects. Calculate the weighted average . How much the project should earn?

3) Equipment A has a cost of Rs.75,000 and net cash flow of Rs.20,000 per year for 6 years. Equipment B would cost Rs.50,000 and generate net inflow of Rs.14,000 per year for six years. The required rate of return is 11%. As per NPV method, which project is acceptable?

4) For question no.3, apply IRR model and find out the IRR for both equipments.

5) XYZ Ltd has the following details:

Sales: Rs.200,000

Variable costs: 140,000

Fixed costs: 40,000 including 15% interest on Rs.100,000.

Calculate the operating, financial andcombined leverage.Determine theadditional salesrequired if EBIT has to be doubled.