NMIMS Solved Assignment Corporate Finance

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NMIMS Global Access

School for Continuing Education (NGA-SCE)

Course: Corporate Finance

Internal Assignment Applicable for September 2020 Examination

Assignment Marks: 30


1. Amit works in an organization which has debt and equity in its capital structure. The net income of the firm is ₹3,00,000. The organization pays ₹ 75,000 every year as interest component to debenture holders. Calculate the weighted average cost of capital if the cost of equity is 14% and cost of debt is 10%. If the company’s new project will provide a return of 11%, suggest whether company should make the investment or not.

2. Mr. Mehta was working with Delta Ltd for the past ten years. The company was planning for expansion and required a funding of ₹ 25,00,000 for the same. He was considering two financial plans and expected EBIT due to expansion was ₹ 12,00,000. The firm was considering to raise funds through equity(Face value ₹10) and the debt @8%. Suggest should the company raise capital through all equity or through equal proportion of debt and equity on the basis of EPS. Assume tax rate as 35%

3. Solve the following:

a. A company earns ₹ 7 per share. The cost of capital is 10%, the rate of return on investment is 12% and the dividend payout ratio is 20%. Calculate the value of each share by using Walter’s Model.

b. XYZ Limited has a paid-up share capital of ₹15 lakhs of ₹10 each. The company has a dividend payout rate of 15%. Annual growth rate is expected to be 3%. The capitalisation rate is 15%. Calculate the value of the share of XYZ based on Gordon’s Model.

 

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