Corporate Finance – NMIMS

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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

Instructions:

  • All Questions carry equal marks.
  • All Questions are compulsory
  • All answers to be explained in not more than 1000 words for question 1 and 2 and for question 3 in not more than 500 words for each subsection. Use relevant examples, illustrations as far aspossible.
  • All answers to be written individually. Discussion and group work is not advisable.
  • Students are free to refer to any books/reference material/website/internet for attempting theirassignments, but are not allowed to copy the matter as it is from the source of reference.
  • Students should write the assignment in their own words. Copying of assignments from otherstudents is not allowed.
  • Students should follow the following parameter for answering the assignment questions.
For Theoretical Answer For Numerical Answer
Assessment Parameter  Weightage  Assessment Parameter  Weightage  
Introduction20%Understanding and usage of the formula20%
Concepts and Application related to the question60%Procedure / Steps50%
Conclusion20% Correct Answer & Interpretation30%

Ques.1. ABC Pvt. Ltd. is considering two mutually exclusive capital investments. The project’s

expected net cash flows are as follows:

If you were told that each project’s cost of capital was 12%, which project should be selected using the NPV criteria? What is each project’s IRR? What is the regular payback period for these two projects? What is the profitability index for each project if the cost of capital is 12%? (10 Marks)

Answer : Introduction

The concept of cash flow implies the movement of money in a virtual form to ensure a narrow payment of sense. From a company perspective, the term cash flow is the core amount of equivalent cash that the company has received in view prospects from its creditors. In general, the cash flow is calculated based on its formula which is depicted as the addition of net income, depreciation; with the subtraction of expenditure in the capital and working capital (change). In this section, the company named ABC limited has considered two project investments with a capital cost of 12%; the researcher has calculated the criteria of net present value with respect to the company curriculum. Moreover, the researcher has also suggested that which project will be

Ques.2. Assume that your father is now 50 years old and plans to retire after 10 years from now. He is expected to live for another 25 years after retirement. He wants a fixed retirement income of Rs. 5,00,000 per annum. His retirement income will begin the day he retires, 10 years from today, and then he will get 24 additional payments annually. Your father has current savings of Rs. 10,00,000 and he expects to earn a return on his savings @ 10% p.a., annually compounding. How much (to the nearest of rupee) must your father save during each of next 10 years to meet his retirement goal?

 (10 Marks)

 

Answer to Question 2

Introduction

In the concept of accounting the term future method of an annuity is a very famous technique in terms of measuring and calculating the upcoming future contingent risk and savings. In this section, the researcher tends to explain the concept of savings with respect to the future method of annuity present value method prescribed below. The term savings is a very important concept as it enables an individual to remain positive and strong at a critical time. It can be derived from the income spent for the purpose of saving, consumption of overdue and from a pension entity. Based on the scenario, that is being mentioned about the researcher father that his age is 50 years and he is substantially planning to retire from this immediate time span. Besides

Ques.3. CP India Ltd has the following capital structure, which it considers optimal:

 

Debt                                            25%

Preference Shares                    15%

Equity shares                             60%

Total                                            100%

 

Applicable tax rate for CPIL is 25%. and investors expect earnings and dividends to

grow at a constant rate of 9% in the future. Risk free rate of return is 6%, average equity share has expected rate of return of 15%. CPIL’s beta is 1.50. Following terms would

apply to new securities being issued as follows:

 

1. New preference can be issued at a face value of Rs. 100 per share, dividend and cost of

issuance will be Rs. 8 per share and Rs. 4 per share respectively.

 

2. Debt will bear an interest rate of 10%.

Calculate

a. Component cost of debt, preference shares and equity shares assuming that CPIL does

not issue any additional equity shares. (5 Marks)

b. WACC.

 (5 Marks)

 

Answer : Introduction

The company management performance is duly depending upon the financial status of an organization. The company with proficiently financially sound tends to attract more of investors and shareholders from the share stock market. In other sense, the term debt is also a very popular term in prospective of the company management. It is recommended to minimize the debt so as to meet the company aims and objective and vice versa. Based on the given situation, the company named as CP India limited new structure of capital is being provided with additional information’s of its debt, preference share, equity share and its appropriate rate of tax. Based on the mentioned details, the researcher has calculated the debt cost, equity share and the preference

Hello MBA aspirants,

Get MBA assignments of NMIMS University solved by educational professionals at a nominal charge.

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Call us at: 08263069601

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