Proficiency in Business Finance
Assignment 1
Q1.Write short notes on any THREE of the following (with suitable examples):
i.
Role of Finance Manager in a Business Organisation
ii.
Wealth Maximisation Vs. Profit Maximisation
iii.
Agency Problem
iv.
Time Value of Money and Its Applications in Business Decision Making
v.
Simple Interest Vs. Compounding Interest
Q2.
(a) A company requires
₹70,00,000 at the end of eight years from now. How much amount should this company deposit every year in a sinking fund so that the requisite amount is arranged at the end of eighth year? Interest rate applicable on this fund is 9% per annum.
(b) Sarita has taken a 7-year loan of
₹ 10,00,000 at an interest of 8% per annum from her company for purchasing a car. The company requires seven equal end-of-year installments for the payment of this loan. Find out the amount of instalment.
(c) An investor has invested Rs. 100000 in a fund that offers a compounding interest of 8% per annum. How much time it will take for the amount to become Rs. 500000?
(d) Amit will be getting Rs. 70 Lacs after 25 years from now. Find out the equivalent value today if his required rate of return is 12% per annum.
Q3.
Tokyo Industries Ltd. is a reputed multinational company which is planning to start its business operations in India. Management of Tokyo Industries Ltd. is considering three investment proposals i.e. Project A, Project B and Project C for this purpose. These projects are more or less same as far as their risk profile is concerned.A committee of five analysts has estimated cash inflows and outflows related to these projects. These estimated cash flows are as follows:
Cash Flows (₹Crore)
Projects C0 C1 C2 C3 C4
Project A - 800 350 350 200 300
Project B - 800 350 350 300 200
Project c - 800 300 350 300 300
The management of this company wants your help in selecting the best investment project. Kindly help the management by ranking these projects by using Payback Period, Discounted Payback Period, NPV, PI and IRR methods.
Discounting rate is 12%.
Which of these project / projects would you recommend to the management of Tokyo Industries Ltd. if:
i. These projects are mutually exclusive.
ii. These projects are independent.
Q4
. Calculate weighted average cost of capital (WACC) for Chirag Pharmaceuticals Ltd. through Book Value as well as Market Value Method (Before tax as well as after tax) with the help of following data:
Equity Share Capital (2,00,000 shares of 10 each) - ₹ 20,00,000
12 % Preference Capital - ₹ 40,00,000
10% Debentures - ₹ 40,00,000
Other Information:
i. Ke = 15%
ii. Market Price of Equity Share is ₹ 225.
iii. Preference Shares are priced at par.
iv. Debentures are priced at 90%.
v. Applicable tax rate is 30%.