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Equitty Capital-Financial Management-Assignment Solution, Exercises of Financial Management

This is assignment solution which is related to Financial Management course. This assignment was assigned by Diwan Parbhakar at Senate of Serampore College (University). It includes: Equity, Capital, Free, Cost, Rate, Return, Market, Effective, Debt, Preference, Share

Typology: Exercises

2011/2012

Uploaded on 07/06/2012

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Q.1: Is Equity Capital Free of cost? Substantiate your
statement.
Q # 2
What is the rate of return for a company if the β is 1.25, risk free rate of return is 8% and
the market rate of return is 14%. Use CAPM model
Q # 3
b) Sundaram Transports has the following capital structure.
Equity capital Rs.10 par value 250K
12% preference share capital Rs.100 each 100 K
Retained earnings 150K
12% Debentures (Rs.100 each) 350K
14% Term loan 150K
Total 1000K
The market price per equity is Rs 54. The company is expected to declare a dividend per
share of Rs.2 per share and there will be a growth of 10% in the dividends for the next 5
years. The preference shares are redeemable at a premium of Rs.5 per share after 8 years.
The current market price of preference share is Rs.92. Debenture redemption will take
place after 7 years at a discount of 2% and the current market price is Rs.91 per
debenture. The corporate tax rate is 40%. Calculate WACC.
Q # 4
The effective cost of debt is less than the actual interest payment made by the firm. Do
you agree with this statement? If yes/no substantiate your views?
Q # 5
Why capital budgeting decision very crucial for finance
managers?
Q # 6 A road project require an initial investment of Rs.10,00,000. It is expected to
generate the following cash flow in the form of toll tax recovery.
Year Cash Inflows
1 450,000
2 4,25,000
3 3,00,000
4 3,50,000
What is the IRR of the project?
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Q.1: Is Equity Capital Free of cost? Substantiate your statement.

Q # 2

What is the rate of return for a company if the β is 1.25, risk free rate of return is 8% and the market rate of return is 14%. Use CAPM model

Q # 3

b) Sundaram Transports has the following capital structure. Equity capital Rs.10 par value 250K 12% preference share capital Rs.100 each 100 K Retained earnings 150K 12% Debentures (Rs.100 each) 350K 14% Term loan 150K Total 1000K

The market price per equity is Rs 54. The company is expected to declare a dividend per share of Rs.2 per share and there will be a growth of 10% in the dividends for the next 5 years. The preference shares are redeemable at a premium of Rs.5 per share after 8 years. The current market price of preference share is Rs.92. Debenture redemption will take place after 7 years at a discount of 2% and the current market price is Rs.91 per debenture. The corporate tax rate is 40%. Calculate WACC.

Q # 4

The effective cost of debt is less than the actual interest payment made by the firm. Do you agree with this statement? If yes/no substantiate your views?

Q # 5

Why capital budgeting decision very crucial for finance managers?

Q # 6 A road project require an initial investment of Rs.10,00,000. It is expected to generate the following cash flow in the form of toll tax recovery. Year Cash Inflows 1 450, 2 4,25, 3 3,00, 4 3,50, What is the IRR of the project?

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