1)The finance manager of Kargil Engineering Ltd , is analyzing a project with a life of 5 years, which requires an initial investment in equipment and machinery of Rs 80 lakh The equipment is expected to have a 5 year lifetime and have no salvage value which is to be depreciated on straight line basis The project is expected to generate revenues of Rs 40 lakh each year for the 5 years and have operating expenses (not including depreciation) amounting to 30 of revenues The tax rate is 40 What is the Internal Rate of Return (IRR) of the project 2)The following information is given about the debentures issued by Merc Ltd Face Value Rs 100 Rate of interest 10 p a Amount realized per debenture Rs 96 Corporate tax rate 40 Debenture is redeemable at a premium of 2 after 6 years The difference between redemption price and net amount realized is to be written off over the life of debenture and the amount so written off is tax deductible The cost of debenture capital is 3)B O Ltd , is intending to acquire substantial shares in S P Ltd , to acquire control in the company The beta of SPLs shares is 1 5 and the current market price of its each share is Rs 88 The company is consistently paying a dividend of Rs 17 per share every year and is expected to pay the same amount even in the future The risk free rate is 9 and the market rate of return is 15 How much extra amount should BOL pay for each share over the current market price so that the price of the share of SPL is at equilibrium as per the CAPM approach 4)The Navadurga company has the following capital structure Equity Shares (1,00,000) Rs 100,00,000 10 Preference Shares Rs 20,00,000 14 Debentures Rs 30,00,000 The current market price of the share is Rs 150 The expected dividend next year is Rs 15 per share, which will grow at 7 forever If the company raises an additional Rs 50,00,000 debt by issuing 15 debentures, the expected dividend increases to Rs 20 and the price of share falls to Rs 125 The growth rate remains the same What is the weighted average cost of capital for the firm, assuming a tax rate of 50 5)A manufacturing company plans to sell 30,000 units of its products during the next year The expected cost of goods sold per unit is as follows Raw material Rs 100 Manufacturing expenses Rs 30 Selling, administration and financial expenses Rs 20 Selling price Rs 200 The duration at various stages of the operating cycle is expected to be as follows Raw material stage 2 months Work in progress stage 1 month Finished goods stage month Debtors stage 1 month Assuming a monthly sales level of 2,500 units, what is the gross working capital requirement of the company (Assume manufacturing expenses are incurred uniformly throughout the production stage) 6)K Silk Ltd , has furnished the following details for the current financial year Sales Rs 450 lakh Average collection period 90 days Bad debt losses 5 of sales Collection expenses Rs 1 lakh Cost of funds 15 Variable cost to sales ratio 60 The company is contemplating to enhance the collection efforts to reduce the amount of receivables and the incidence of bad debt losses In view of the above, the company has undertaken a new program which is likely to reduce the average collection period to 60 days, decrease bad debt losses to 3 of sales but increase the collection expenses by Rs 4 lakh Assuming that the sales remain constant, what would be the change in profits 7)Consider the following data of M s X Ltd Operating profit Rs 1,00,000 Profit after tax Rs 50,000 10 Preference shares Rs 1,00,000 Degree of total leverage 4 Tax rate 20 If EBIT has to increase by 10 , by how much should the sales be increased 8)You are the owner of a small business which has the following balance sheet Current assets 10,000 Accounts payable 2,500 Net Fixed Assets 20,000 Accruals 2,500 Long Term Debt 10,000 Common Equity 15,000 Total Assets 30,000 Total Liability and Equity 30,000 Fixed and current assets are fully utilized, and the sales assets and sales spontaneous liabilities ratios will remain constant Next year you expect sales to increase by 50 percent You also expect to retain Rs 2,250 of next year's earnings within the firm What is next year's additional external fund requirement

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1)The finance manager of Kargil Engineering Ltd., is analyzing a project with a life of 5 years, which requires an initial investment in equipment and

1)The finance manager of Kargil Engineering Ltd., is analyzing a project with a life of 5 years, which requires an initial investment in equipment and machinery of Rs.80 lakh. The equipment is expected to have a 5-year lifetime and have no salvage value which is to be depreciated on straight line basis. The project is expected to generate revenues of Rs.40 lakh each year for the 5 years and have operating expenses (not including depreciation) amounting to 30% of revenues. The tax rate is 40%. What is the Internal Rate of Return (IRR) of the project?

2)The following information is given about the debentures issued by Merc Ltd.:

Face Value = Rs.100

Rate of interest = 10% p.a.

Amount realized per debenture = Rs.96

Corporate tax rate = 40%

Debenture is redeemable at a premium of 2% after 6 years. The difference between redemption price and net amount realized is to be written off over the life of debenture and the amount so written off is tax-deductible. The cost of debenture capital is ?

3)B O Ltd., is intending to acquire substantial shares in S P Ltd., to acquire control in the company. The beta of SPLs shares is 1.5 and the current market price of its each share is Rs.88. The company is consistently paying a dividend of Rs.17 per share every year and is expected to pay the same amount even in the future. The risk-free rate is 9% and the market rate of return is 15%. How much extra amount should BOL pay for each share over the current market price so that the price of the share of SPL is at equilibrium as per the CAPM approach?

4)The Navadurga company has the following capital structure:

Equity Shares (1,00,000) Rs.100,00,000

10% Preference Shares Rs. 20,00,000

14% Debentures Rs. 30,00,000

The current market price of the share is Rs.150. The expected dividend next year is Rs.15 per share, which will grow at 7% forever. If the company raises an additional Rs.50,00,000 debt by issuing 15% debentures, the expected dividend increases to Rs.20 and the price of share falls to Rs.125. The growth rate remains the same. What is the weighted average cost of capital for the firm, assuming a tax rate of 50% ?

5)A manufacturing company plans to sell 30,000 units of its products during the next year. The expected cost of goods sold per unit is as follows:

Raw material Rs 100

Manufacturing expenses Rs 30

Selling, administration and financial expenses Rs 20

Selling price Rs 200

The duration at various stages of the operating cycle is expected to be as follows:

Raw material stage 2 months

Work-in-progress stage 1 month

Finished goods stage month

Debtors stage 1 month

Assuming a monthly sales level of 2,500 units, what is the gross working capital requirement of the company? (Assume manufacturing expenses are incurred uniformly throughout the production stage)

6)K Silk Ltd., has furnished the following details for the current financial year:

Sales Rs.450 lakh

Average collection period 90 days

Bad debt losses 5% of sales

Collection expenses Rs.1 lakh

Cost of funds 15%

Variable cost to sales ratio 60%

The company is contemplating to enhance the collection efforts to reduce the amount of receivables and the incidence of bad debt losses. In view of the above, the company has undertaken a new program which is likely to reduce the average collection period to 60 days, decrease bad debt losses to 3% of sales but increase the collection expenses by Rs.4 lakh. Assuming that the sales remain constant, what would be the change in profits ?

7)Consider the following data of M/s. X Ltd.:

Operating profit Rs.1,00,000

Profit after tax Rs. 50,000

10% Preference shares Rs.1,00,000

Degree of total leverage 4

Tax rate 20%

If EBIT has to increase by 10%, by how much should the sales be increased ?

8)You are the owner of a small business which has the following balance sheet:

Current assets 10,000 Accounts payable 2,500

Net Fixed Assets 20,000 Accruals 2,500

Long Term Debt 10,000

Common Equity 15,000

Total Assets 30,000 Total Liability and Equity 30,000

Fixed and current assets are fully utilized, and the sales/assets and sales/spontaneous liabilities ratios will remain constant. Next year you expect sales to increase by 50 percent. You also expect to retain Rs.2,250 of next year's earnings within the firm. What is next year's additional external fund requirement ?