1. Mr. Ashish is evaluating an investment that is expected to provide the following returns at the end of each of the following years:

Year

Cash Flow

1

10,000

2

7,000

3

12,500

4

0

5

5,000

6

12,000

He believes that the investment would earn an annual rate of 8 percent. What amount should he pay for this investment?

2. A company is examining 2 projects, A and B - each with initial and immediate investment of Rs. 1 crore. The anticipated return from the 2 projects is as follows:

Year

1

2

3

4

5

6

7

8

9

10

11

12

13

A

--

--

5

10

10

20

20

20

20

25

25

30

30

B

5

10

10

10

15

15

15

15

15

15

15

--

--

If the rate of interest for the entire period is 10 percent per annum, find out which project is better for the company to invest in?

3. Mr. A has taken a loan of Rs. 1,00,000. This loan is to be repaid in equal instalments of Rs. 20,000, annually. The interest rate applicable on the loan is 8 percent. How many years will it take for the loan to be repaid in full? Prepare loan amortization chart.

4. A machine costs Rs. 3,00,000 and its effective life is estimated to be 6 years. A sinking fund is created for replacing the machine at the end of its effective life time when its scrap realizes a sum of Rs. 20,000 only. Calculate the amount which should be provided, every year, for the sinking fund if it accumulates at 8% p.a. compounded annually.

5. The details of dividend paid by Datson Ltd. on its existing equity shares of Rs. 10 each for the past 6 years is given below:

Year

2011

2012

2013

2014

2015

2016

Dividend Per Share

1.05

1.10

1.16

1.21

1.27

1.34

The current market price of equity shares is Rs. 40. It is expected to maintain the fixed dividend payout ratio in the future. The company has issued new equity shares of Rs. 10 each and the cost of its flotation is Rs. 0.50 per share. The expected dividend to be declared for the current year is Rs. 1.40.

Using the above information calculate the cost of equity capital.

6. The bonds of a firm are currently selling for Rs. 12,000. Following details are given:

(a) Coupon rate of interest, 10 percent

(b) Par value, Rs. 10,000

(c) Years to maturity, 10 years

(d) Interest is paid annually

Find out the YTM

7. A firm pays 15 percent dividend on the shares of the Face Value of Rs. 100 each. It is given that the growth rate in dividend is expected to be zero and the required rate of return is 12 percent. Determine the value of the equity share.

8. A firm is expected to grow at 12 percent per year for the next 2 years, 9 percent for next 3 years and to grow indefinitely at the same rate as GDP, i.e. 6 percent. The cost of equity is 14 percent. Assuming that the company currently paid a dividend of Rs. 4 per share, determine the market price of the shares.

9. The price per bond of Zion Ltd is Rs. 90. The bond has a par value of Rs. 100, a coupon rate of 14% and a maturity period of 6 years. What is the yield to maturity?

10. Calculate the future value of Rs. 1,000 invested in State Bank Cash Certificate scheme for 2 years @ 5.5% p.a., compounded semi-annually.