NMIMS Global Access

School for Continuing Education (NGA-SCE)

Course: Corporate Finance

Internal Assignment Applicable for April 2020 Examination

1 ABC Ltd. is considering two financing plans to raise ₹ 8,00,000. The key information is as follows:

TABLE GIVEN BELOW:

Plan

Equity

Debt

Preference Shares

1

50%

50%

2

50%

50%

 

Expected EBIT is ₹ 2,40,000.

Cost of Debt is 10% and cost of Preference Shares is 10%.

Tax rate is 50%.

Equity shares of the face value of ₹ 10 each will be issued at a premium of ₹ 10 per share.

Calculate Earnings per share for plan 1 and 2 and suggest which one is better.

(10 Marks)

2. A Project costs ₹ 60,000 and is expected to generate cash inflows as:

Year

Cash inflows(₹)

1

10,000

2

12,000

3

15,000

4

18,000

5

20,000

6

22,000

 

Calculate Net Present Value and Profitability Index. Comment whether project should be accepted or not. Assume cost of capital is 10%. Enumerate the steps of calculation of NPV.

 

3. The following information is given for Alpha Ltd.

Earnings per share

₹ 12

Dividend per share

₹ 3

Cost of Capital

18%

Internal Rate of Return On Investment

22%

Retention Ratio

75%

Calculate the market price per share using

a. Gordon’s Dividend Model (5 Marks)

b. Walter’s Dividend Model (5 Marks)

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