Scribd
Upload
5 views

FM Lab Project

fm project du

Uploaded by

33714
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
5 views

FM Lab Project

fm project du

Uploaded by

33714
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 2

Atma Ram Sanatan Dharma College

Financial Management Lab Project

Note: Upload the Excel file in the link:


https://forms.gle/5S2rjZizXu99ry4t6

Last date of submission: 24/11/2024

1. The capital structure of Greaves Ltd. consists of the following:


Equity shares of Rs. 10 each Rs. 40,00,000
10% Preference shares of Rs. 100 each Rs. 30,00,000
12% Secured Debentures of Rs. 100 each Rs. 20,00,000
The net sales for the company were Rs. 1.6 crores. EBIT is estimated to be 10% of
sales. Corporate tax rate is 40%. Fixed cost is estimated to be Rs. 50,00,000.
(i) Draw the Income Statement of Greaves Ltd.
(ii) Calculate the Operating, Financial leverages and Combined leverage.
What will be the % change in EPS if EBIT rises by 10%? What will be the new EPS?

2. From the following information provided by MNO Ltd., you are required to calculate
the weighted average cost of capital (k0) using Market Value Weights. The present
book value capital structure of MNO Ltd. is:
(Amount in Rs.)
Debentures (Rs. 100 per debenture) 10,00,000
Preference Shares (Rs. 100 per share) 5,00,000
Equity Shares (Rs. 10 per share) 20,00,000
Retained Earnings 5,00,000
Total 40,00,000
All these securities are traded in the capital markets. Recent prices are: debentures @
Rs. 110, preference shares @ Rs. 120 and equity shares @ Rs. 22. Anticipated
external financing opportunities are:
(i) Rs. 100 per debentures redeemable at par: 20-year maturity, 8% coupon rate,
4% floating costs, sale price Rs. 100.
(ii) Rs. 100 preference shares redeemable at par: 15-year maturity, 10% dividend
rate, 5% floating costs, sale price Rs. 100.
(iii) Equity shares: Rs. 2 per share floating costs, sale price Rs. 22.
In addition, the dividend expected on the equity shares at the end of the year is Rs. 2
per share; the anticipated growth rate in dividends is 5% and the company has the
practice of paying all its earnings in the form of dividends. The corporate tax rate is
30%.
3. A firm whose cost of capital is 10% is considering two mutually exclusive projects X
and Y, the details of which are:
Year 0 1 2 3 4 5
Project X 100000 10000 20000 30000 45000 60000
Project Y 100000 50000 40000 20000 10000 10000
Compute the Net Present Value at 10%, Profitability Index, and Internal Rate of Return for the
two projects.

4. A company is considering an investment proposal to purchase a machine costing Rs.


250000. The Machine has a life expectancy of 5 years and no salvage value. The
company’s tax rate is 40%. The cost of capital is 10%. The company uses SLM of
providing depreciation. The estimated earnings after taxes from the machine are as
follows:
Year 1 2 3 4 5
Earnings After Tax 6000 12000 24000 30000 60000
Calculate: (A) ARR (B) Pay Back Period (C) NPV (D) IRR

5. Calculate the degree of operating leverage (DOL), degree of financial leverage (DFL)
and the degree of combined leverage (DCL) for the following firms and interpret the
results.
Firm A Firm B Firm C
Output (units) 60000 15000 100000
Fixed Cost (Rs.) 7000 14000 1500
Variable cost per unit (Rs.) 0.2 1.5 0.02
Interest on borrowed funds (Rs.) 4000 8000 ---
Selling Price Per Unit 0.6 5.0 0.1

6. A Limited has the following capital structure:


Equity share capital (2,00,000 shares) Rs. 40,00,000
6% Preference shares Rs. 10,00,000
8% Debentures Rs. 30,00,000
The market price of the company’s equity share is Rs. 20. It is expected that company
will pay a dividend of Rs. 2 per share at the end of current year, which will grow at 7
per cent for ever.
The tax rate is 30 per cent. You are required to compute the following:
(i) A weighted average cost of capital based on existing capital structure.
(ii) the new weighted average cost of capital if the company raises an additional Rs.
20,00,000 debts by issuing 10 per cent debentures. This would result in increasing the
expected dividend to Rs. 3 and leave the growth rate unchanged but the price of share
will fall to Rs. 15 per share.

You might also like