ASSIGNMENT FOR EMBA STUDENTS FOR FM COURSE BY DR NARAYAN BASER

Q.1 (a) At the time of his retirement, Rahul is given a choice between two alternatives: (a) an
annual pension of Rs120,000 as long as he lives, and (b) a lump sum amount of
Rs.1,100,000. If Rahul expects to live for 20 years and the interest rate is expected to be
10 percent throughout , which option appears more attractive
(b) Anurag Limited borrows Rs.2,000,000 at an interest rate of 12 percent. The loan is to be
repaid in 5 equal annual installments payable at the end of each of the next 5 years.
Prepare the loan amortization schedule
Q.2 (a) Adinath Limited is expected to give a dividend of Rs.3 next year and the same would
grow by 15 percent per year forever. Adinath pays out 30 percent of its earnings. The
required rate of return on Adinath’s stock is 16 percent. What is the Price of Share with
growth and without growth?
(b) The current dividend on an equity share of Omega Limited is Rs.8.00 on an earnings per
share of Rs. 30.00. Assume that the dividend/Earnings per share will grow at the rate of
12 percent Investors require a return of 15 percent from Omega’s equity shares. What is
the intrinsic value of Omega’s equity share using GORDON Model.
Q.3 (a) Company U and L are identical in every respect except that the former does not debt in
its capital structure while later employs Rs. 6 00 000 of 15% debt. The EBIT for both the
firms are Rs. 2 00 000. Equity capitalization rate for unlevered company is 20%. Compute
the value of the firms using NOI and NI approach
(b) The following cash flows are available from FF7 Ltd.
Year 1 2 3 4 5
Project A 7000 8000 9000 10000 12000
Project B 5000 12000 15000 17000 15000
Cash outflow is 35000 for Project A and 40000 for Project B. You are required evaluate
both the projects with NPV if the discount rate is 12%..
Q.4 (a) Super Dairy Limited (STL) is planning to buy dairy equipment costing Rs 300 lacs. Milk
Board provides 10% subsidy on the capital cost. It can process milk to produce cheese
with the capacity of 1800 tonnes per annum. The selling price of cheese is taken as Rs
50 per Kg. The management of expects the life of the plant at 8 years and the
depreciation policy is SLM. However the plant can be sold at Rs 50 lacs at the end of its
useful life. The utilisation of plant is expected as below:
Years 1 2 3 4 to 8
Capacity utilisation 60% 70% 80% 90%
The variable cost constituting primarily of the raw material, milk is placed at 40% while
the fixed expenses are Rs 300 lacs per annum. The firm pays 35% tax. The additional
working capital required is Rs 100 lacs. Cost of capital is 15%
Find the following: a) Cash flows of the project from Year 0 to Year 8 b) NPV of the
project c) IRR of the project, and d) Should the project be accepted based on NPV and
IRR
(b) You are the CFO of Tata Motors. Your company is planning to design the dividend policy.
You have been asked to explain the factors influencing the dividend policy for your
company
Q.5 (a) Explain the Theories of Capital Structure with Graphs
(b) Define the scope of Financial Management. What role should the finance manager play
in a modern enterprise?
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