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Q.5 COF = 55 Project A (Rs. Lacs) Year PAT 1 10 2 11 3 9 4 7 5 2 6 1_ Total PAT. 40

Depr 11 11 11 11 11 11

CIF 21 22 20 18 13 12

CCIF 21 43 63 81 94 106

a) Payback period = 2 years + 55 43 x 12 20 = 2 years 7.2 mts b) Payback profitability = TCIF TCOF = 106 55 = 51 Lakhs c) Avg. PAT = 40 6 Rs.6,66,667 / :. ARR based on original Inv. = Avg. PAT x 100 O.I = 6,66,667 x 100 55,00,000 = 12.12% COF = 70 Project B (Rs. Lacs) Year 1 2 3 4 5 6 Total PAT.

PAT 15 13 10 7 3 (0.5) 47.5

Depr 10.5 10.5 10.5 10.5 10.5 10.5

CIF 25.5 23.5 20.5 17.5 13.5 10

CCIF 25.5 49 69.5 87 100.5 110.5

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a) Payback period = 3 years + 0.5 x 12 17.5 = 3 years 0.34 mts b) Payback profitability = TCIF TCOF = 110.5 70 = 40.5 Lakhs c) Avg. PAT = 47.5 6 Rs.7,91,667 / :. ARR based on original Inv. = Avg. PAT x 100 O.I = 791667 x 100 70,00,000 = 11.13% Recommendation:a) PB Period Select Project A :. Lower PBP b) PB profitability Select Project A :. Higher PB profitability c) ARR Select Project A :. Higher ARR :. Project A is recommended for Ultimate Selection.

Q.7ABC MV of all Real A Fixed A Current A Investment i) Agreed V of OL Current L Borrowed F ii) Net assets for all SH i) ii) - Pymt to PSH 10% PSC Net assets for ESH No. of Shares :. Intrinsic Value / Share Note:- F.A EFG = 340 288 412 100 800 288 166 454 346 20 326 10 32.6 EFG 357 389 70 816 290 199 489 327 327 12 27.25

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i)

68 + 25% 17 85 Note 2):- Invest. EFG = 80

272 = 357

25% 20 -50% 10 10

60 = 70 ABC Yield Value / Share = ARR x Paid OP NRR Valu/Sh 3. Fair Value per share = Intrinsic + Yield 2 = 18 x 10 12 = Rs.15 = 32.6 + 15 2 = Rs. 23.8 EFG 21 x 10 15 = Rs.14 = 27.25 + 14 2 = Rs.20.63

Q.2 Important Ratios.. PROJECT A 1. Debt Equity ratio = Debt . Equity Rank 2. Return on Inv. = PBIT x 100 Cap E Rank 3. Interest Coverage ratio = PBIT Int Rank 4. DSCR PBIT + dept Tax Int + (P) Inst = 100 = 5 20 III = 35 + 12 x 100 120 = 39.17% II = 35 + 12 12 = 3.92 times III = 47 + 18 10.5 12 + 16.67 = 54.5 PROJECT B 110 = 2.75 40 I 50 + 13.2 x 100 150 = 42.13% I 50 + 13.2 13.2 4.79 times I = 63.2 + 15 15 13.2 + 22 = 63.2 PROJECT C 80 = 4 20 II 30 + 8.8 x 100 100 = 38.8% III 30 + 8.8 8.8 4.41 times II = 38.8 + 20 9 8.8 + 11.43 49.8

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28.67 = 1.9 times II 35.2 = 1.80 times III 20.23 = 2.46 times I

Rank

Note:- 1) Ratios are calculated for 1st Year. 2) It is assumed that Loan is paid in equal principle Installment. Project A Merits 1. Reasonably high ROI i.e. 39.17% 2. DSCR 1.9 times higher than standard 1.5 3. Satisfactory Interest Coverage ratio 3.92 times Demerits 1. High Debt Equity ratio i.e. 5 2. Machinery as security which is subject to reduction in value over the years due to depreciation. Project B Merits 1. Lowest Debt equity ratio amongst three companies i.e. 2.75times 2. Highest ROI amongst three companies i.e. 42.13% 3. Highest Interest coverage ratio amongst three companies i.e. 4.79 times 4. DSCR 1.8 times higher than standard 1.5 5. Land & Bldg offered as security which is generally subject to appreciation over the years. Demerits Debt equity ratio even though lowest amongst three companies is higher than the standard 2 Project C Merits 1. Reasonably high ROI i.e. 38.8% 2. Reasonably high Interest coverage ratio 4.41 times. 3. Highest DSCR amongst three companies i.e. 2.46 times. 4. Bank Deposit as security is the best possible security as it can be very easily converted into money in case of default and is not subject to fluctuations in value. Demerits a) High debt equity ratio i.e. 4 b) Longest repayment period i.e. 7 years amongst three companies Conclusion Based on above merits & demerits of each project my recommendation is to select Project B. Second best choice is Project C because of high quality of security

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