Corporate Finance NMIMS Assignment Dec 2019

Corporate Finance

1. Assume that ABC Ltd has equity share capital of 15,00,000 divided into shares of Rs.150 each. The company wishes to raise additional total capital of 6,00,000 for expansion through 3,00,000 in equity shares and 3,00,000 in debts at 10%. The EBIT of the company is 3,00,000 and tax rate is 50%. Calculate EPS. Suggest what will happen to EPS if entire capital was raised through debts.

2. Alpha Ltd is expecting an annual Earnings Before Interest and Tax of 1,50,000. The company had 10% debentures of 5 Lakhs. Calculate the overall cost of capital of the firm if the cost of Equity is 12% assuming NI approach in the calculation. Suggest what happens to the value of the firm when more debentures are issued.

3. Mr. Mehta works as a Management Consultant in XYZ Ltd and his role involved analyzing capital investment projects. His manager asked him to analyze project X which involved capital investments of 10,00,000 and the cost of capital of 12%. The projects netcash flows are as follows:

Years

1

2

3

4

5

Cash inflow

20000

30000

40000

45000

50000

Calculate:

a. Net Present Value of the project and suggest whether project is to be accepted or not.

b. Internal rate of return and suggest whether project is to be accepted or not.