Corporate Finance Apr18 NMIMS Assignments

Corporate Finance

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Q1: Calculate the degree of operating leverage and degree of financial leverage for the following firms:

Firms	A	B
Sales (Rs.) Variable cost p.u Fixed cost (Rs.) Output (units) Interest	3,60,000 20 72,000 6,000 40,000	7,50,000 150 1,40,000 1,500 80,000

Q2. A Project costs Rs 60,000 and is expected to generate cash inflows as:

Year	Cash inflows(Rs)
1	10,000
2	12,000
3	15,000
4	18,000
5	20,000
6	22,000

Calculate the Net Present Value of the project if the cost of capital is 10%. (10 Marks)

Q3. Solve the following:

a) A company earns 5 per share. The cost of capital is 10%, the rate of return on investment is 14% and the dividend payout ratio is 25%. Calculate the value of each share by using Walter’s Model. (5 Marks)

b) XYZ Limited has a paid-up share capital of Rs. 10 lakhs of Rs. 10 each. The company has a dividend payout rate of 10%. Annual growth rate is expected to be 4%. The capitalisation rate is 20%. Calculate the value of the share of XYZ based on Gordon’s Model. (5 Marks)