Quiz 1

Q1
EBIT 100000
Tax 30000
Net Income 70000 Available to all shareholders

Q2
Given

EBIT 100000
Debt 500000
Interest 30000 at 6%
EBT (Earning before Tax) 70000
Tax 21000
Net Income 49000
Q3
1 The appropriate discount rate is the cost of debt = 6%
2 The present value of tax shield 500000

Q4 C
A
B
C
Quiz 2

Q1 B, D , E
Q2 A,C
Q3 Internal Funds
Debt
Equity
Q4 A-Neagtive
B-Positive
C-Positive
D-Negative

Q5 1
0

Q6 Firm X will have higher debt because as a power generation firm , X has more tangible asse
than Firm Y where the real assets are in the form of intangile assets
Quiz 3

Q1
Market Value 10000000
 EBIT 100000 200000
TAX 30000 60000
DEBT 100000 100000 at Perpetuity
Interest 5000 5000
One off Payment 2000 2000
PAT 63000 133000

APV (Adjusted Present Value) 63000 133000

Q2 A

Q3 B,C
Q4 A
Q5 B,C
Q6 Given 0.7
Tax Rate 30%
Debt Equity
Ratio ?
We Know
Beta of Unlivered Firm = Beta of levered firm / (1+ (1-Tax Rate) * (Debt/Equity))
from calulation D/E 0.612244898
Q7 Given
Beta of Unlivered Firm = 0.8
Risk free rate 0.05
Expected Return 0.1
Tax Rate 0
Unlivered Cost of Equity ?
We know that unlivered Cost of equity = (Risk Free rate) + Beta (Expected
1 Unlivered Cost of Equity 0.09
2 Given D/E 1:01
Beta of levered firm = 1.6

Quiz 4

Q1 1
Sell 4 shares
Q2 A
Q3 D
Q4 1
0
Q5 -------
Q6 Current Outstnding 1000 shares
market value 20000 $
 Earnings per share 20 $
Excess cash 1000 $
Repurchase shares 50 shares
Current Outstnding 950 shares
New EPS 21.05263 $

Quiz 5

Q1 D
Q2 C
Q3 B
Q4 E
Q5 D
Q6 ----
Q7 1
Q8 SEBI
Lock in Period
Quiz 6

Q1
Given that the trade credit terms are 3/12, net 85.
This means that the customer will get a discount of 3% if paid within 12 days,
and if discount is not availed the amount is due in 85 days.
Cost of Credit = (1+Discount/1-Discount) ^ (365/ Days after discount Period )
85.46% (payment at 30th day)

Q2 Payable (Outstanding) 200000

sales 500000
COGS 400000
CASH CYCLE --
Accounts Payable --

Q3 Collection Float
Disbursement float
Q4 Cash Budget
Lock Box
Aging schedule
Q5 Cognizance
has more tangible assets
* (Debt/Equity))

te) + Beta (Expected return - Risk Free Rate)

after discount Period )- 1
Q2 Assume the total valuation of the company is 1000000
Debt component is 500000 (50% of company capital structure) taken at 6% interest rate

Given EBIT 100000

Debt 500000
Interest 30000 at 6%
EBT (Earnin 70000
Tax 21000 30%
Net Income 49000

1 Since 50% of capital structure is 50% , debt holders wil 24500

2 Net income to shareholders each year is (50%) 24500
3 Tax shield is the difference amount taxable if
company didnt take debt because interest payment n 30000 0.428571
the net income

Given

EBIT 100000
Corporate T 30%
After tax
required
rate of
return 20% Assuming 20% return rate

V (Unlivere(EBIT(1-Tax))/required return rate

350000

According to Modigliani Miller Proposition 1

VL = VU + Tax(Value of debt in a firms capital structure)

Given VU 350000
Tax 0.3
Value of
debt 500000
VL(Livered 500000

Tax Shield
=
Tax*Debt
Compone
nt 150000
ken at 6% interest rate