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 as possible.
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 their assignments, 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 other students is not allowed.
Students should follow the following parameter for answering the assignment questions.
For Theoretical Answer Assessment Parameter Weightage Introduction 20% Concepts and Application 60% related to the question Conclusion 20%
For Numerical Answer Assessment Parameter Weightage Understanding and usage 20% of the formula Procedure / Steps 50% Correct Answer & Interpretation
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
NMIMS Global Access School for Continuing Education (NGA-SCE) Course: Corporate Finance Internal Assignment Applicable for September 2020 Examination
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. (10 Marks)
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% (10 Marks)
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.
(5 Marks)
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.
(5 Marks)
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