SECTION - 1

Q-1 (A) Do as directed. I) Write the formula of perpetual bond. II) What is book value?

Investopedia explains 'Book Value'

Book value is the accounting value of a firm. It has two main uses: 1. It is the total value of the company's assets that shareholders would theoretically receive if a company were liquidated. 2. By being compared to the company's market value, the book value can indicate whether a stock is under- or overpriced. 3. In personal finance, the book value of an investment is the price paid for a security or debt investment. When a stock is sold, the selling price less the book value is the capital gain (or loss) from the investment. III) What is specific cost of capital? IV) What is cost of retained earning? V) What is implicit cost?

In economics, an implicit cost, also called an imputed cost, implied cost, or notional cost, is the opportunity cost equal to what a firm must give up in order to use factors which it neither purchases nor hires.
VI) What is efficient capital market? VII) State different approaches for computation of cost of equity. Q-1 (B) Answer the following in brief. (Any 4) I) Draw the diagram for relationship between required rate of return and bond value. II) Draw the diagram for relationship between maturity of bond and bond value. III) Write a formula of multi period valuation. IV) Assume that a firm pays tax at 50% , compute after cost of capital if a ten years, 8%

Rs. 1000 per bond sold at Rs. 950 less 4% underwriting commission.
V) Explain the cost of capital concept from the firms point of view with example. VI) State the significance of cost of capital.