Q1) Raja Corporation is considering the risk characteristics of a project. The firm has identified that the following factors with their respective expected values have a bearing on the NPV of this project:

Sr. No.	Particulars	Amount (Rs)
1.	Initial Investment	30,000
2.	Cost of capital	10%
3.	Quantity manufactured and sold annually	1400
4.	Price per unit	30
5.	Variable cost per unit	20
6.	Fixed cost	3000
7.	Depreciation	2000
8.	Tax rate	50%
9.	Life of the project	5 years
10.	Net salvage value	Nil

Assume that the following underlying variables may have values as shown below:

Underlying Variables	Pessimistic	Optimistic
Quantity manufactured and sold	800	1800
Price per unit	Rs 20	Rs 50
Variable cost per unit	Rs 40	Rs 15

Required:

(A) Calculate the sensitivity of net present value to variation in (i) quantity manufactured and sold (ii) price per unit.

(B) Calculate the accounting breakeven point and the financial breakeven point

Q 2. Modern corporation is currently at its target debt-equity ratio of 0.5:1. It is considering a proposal to expand capacity which is expected to cost Rs 500 million and generate after tax cash flows of Rs130 million per year for the next eight years. The tax rate for the firm is 30 percent. Ram the CEO of the company, has considered two financing options (i) Issue of equity stock. The required return on the company's new equity is 20 percent and the issuance cost will be 12 percent. (ii) Issue of debentures at a yield of 13 percent. The issuance cost will be 3 percent.

Required:

a) What is the WACC for Modern?

b) What is the Modern's weighted average flotation cost?

c) What is the NPV of the proposal after taking into account the flotation coast ?

Q3. The balance sheet of Rama cables Ltd. on December 31, 20X0 is given below:

Amt Rs 000

Liabilities & Capital	Amount	Assets	Amount
Share capital	150	Fixed assets	400
Retained earnings	180	Inventories	200
Long-term borrowings	80	Receivables	150
Short-term bank borrowings	200	Cash	50
Trade creditors	140
Provisions	50
Total	800		800

The sales of the firm for year ending on 31st December were Rs10, 00,000. Its profit margin on the sales was 6 percent and its dividend payout ratio was 50 percent. The tax rate was 60 percent. Rama cables expects its sales to increase by 30 percent in the year 20X1. The ratio of assets to sales and spontaneous current liabilities to sales would remain unchanged. Likewise the profit margin ration, tax rate and dividend payout ratio would remain unchanged.

Required:

Estimate the external funds requirement for the year 20X1.

answer all THREE question