Corporate Finance Practice Worksheet 2

PGDM (A & B)
Date: 12/12/22

1. Suppose we want to accumulate ₹75,000 at the end of four years from now. How much
should we deposit each year at an interest rate of 6%?

2. Your father has promised to give you 1,00,000 in cash on your 25th birthday. Today is your
16th birthday. He wants to know two things: (a) if he decides to make annual payments into a
fund after one year, how much will each have to be if the fund pays 8%? (b) if he decides to
invest a lumpsum in the account after one year and let it compound annually, how much will
the lumpsum be? (c) If in (a) the payments are made in the beginning of the year, how much
will be the value of annuity? Assuming the interest rate is 8% in each case.

3. A company has issued debentures of ₹50 lakh to be repaid after 7 years. how much should
the company invest in a sinking fund earning 12% in order to be able to repay debentures?

4. Find out the present value of ₹50,000 to be received after 15 years, if the interest rate is
9%. What would be the present value if ₹50,000 was received after 20 years.

5. ABC company expects to receive Rs.1,00,000 for a period of 15 years from a new project it
has just undertaken. Assuming a 8% rate of interest, how much would be the present value
of this annuity?

6. Exactly ten years from now Sri Chand will start receiving pension of ₹3,000 a year. The
payment will continue for sixteen years. how much is the pension fund worth now if Sri
Chand’s interest rate is 10%?

7. From the following information calculate the present value of the cash inflows

Year 1 2 3 4 5
Cash inflows 250 500 750 1,000 1,250
(₹)
8. If ABC company expects cash inflows from its investment proposal it has undertaken in time
period zero, Rs.2,00,000 and Rs.1,50,000 for the first two years respectively and then expects
annuity payment of Rs.1,00,000 for the next eight years, what would be the present value of
cash inflows, assuming a 10% rate of interest?

9. Suppose you plan to invest ₹10,000 today for a period of four years. if your interest rate is
10%, how much income per year should you receive to recover your investment?

10. An executive is about to retire at the age of 60. His employer has offered him two post
retirement options.

a. Rs.20,00,000 lumpsum

b. Rs.2,50,000 for 10 years

Assuming 10% interest, which is a better option?

11. Suppose you have borrowed a 3-year loan of ₹10,000 at 9% from your employer to buy a
motorcycle. If your employer requires three equal end of the year repayments, then the
annual instalment will be how much?

12. An investor expects a perpetual sum of ₹500 annually from his investment. What is the
present value of this perpetuity if the interest rate is 10%?

13. A company paid a dividend of ₹60 last year. The dividend stream commencing from year
one is expected to grow at 10 percent per annum for 15 years and then end. If the discount
rate is 21%, what is the present value of the expected series? If dividend of ₹66 were expected
to grow perpetually, the present value would be how much?

14. A bank has offered you an annuity of 1,800 for 10 years if you invest 12,000 today. What
rate of return would you earn?
15. A firm purchases a machinery for ₹8,00,000 by making a down payment of ₹1,50,000 and
the remainder in equal instalments of ₹1,50,000 for six years. What is the rate of interest to
the firm?