Q.1.

The sales revenue for last year was 800,000. The cost of goods sold was 400,000. Operating expenses were 150,000. The interest paid was 100,000. The tax rate is 20%. The firm has issued 10,000 equity shares. The pay-out ratio is 60%. The dividends are projected to grow at a constant rate of 6% per annum. The cost of equity is 8.50% per annum. What is the share price, and what is the price-earnings multiple?

Q.2.

An unlevered company has a beta of 1.25. It is taken private and then relisted with a debt-equity ratio of 3:2. The tax rate is 20%. The risk-less rate of interest is 5%, and the expected return on the market is 13%. The company has issued debt with 10 years to maturity, and a face value of 1,000. The coupon is 8% per annum paid semi-annually, and the price is 970. What is the WACC?

Q.3.

Project-A requires an investment of Rs. 7200 and gives cash inflows of 2,500, 4000, and 5,000 over three years. Project-B requires an investment of Rs. 9000 and gives cash inflows of 3,000, 4000, 5,000, and 3000 over four years. The cost of capital is 10%. Which project would you choose if they are mutually exclusive?