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.
(10 Marks)
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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University: NMIMS