Case Study-1 The cost of capital and rate of return on investment of netree ltd is 10% and 15% respectively

the company has 10lakh equity shares of rs 10 each outstanding and its EPS is Rs.5 Calculate the value of the firm in the following situation using the walters dividend model. a) 100% retention ratio b) 50% retention ratio c) No retention. Comment on your results. P= D+(E-D)r/k K Where P is the price per equity share D is the above dividendn per share E is the earnings per share (E-D) is the retained earnings per share r is the rate of return on investements k is the cost equity

Case study-2 Urmila ltd and Lara ltd are identical in every respect except that the former does not have debt in this capital structure while later employs rs 600000 of 15% debt .the ebit for both the firms are 200000 equity capitalization rate for unleveled company is 20%compute the value of the firms using NOI and NI approach .if your holding 10% shares of levered company show that how will you gain by arbitrage process According to NI approach: Urmila Ltd (Unlevered) EBIT Less Interest Earnings for Equity Holders Equity Capitalization Market Value of Equity (E) Market Value of Debt (D) 200000 200000 .20 1000000 0 Lara Ltd (Levered) 200000 90000 110000 ---110000 600000

Total Value of Firm (E+D) Valuation using NOI approach: Value of Urmila ltd =

Rs 1000000

Rs 710000

200000 / .20 = Rs 1000000

Value of Lara Ltd = Rs 200000 + Rs 600000 = Rs 800000

Case study-3 Tia Ltd is considering to produce high quality fountain pen .the necessary equipment to manufacture the fountain pen would cost rs 200000 and would last 5 year .the expected salvage value will be 20000.depriciation will be as per the straight line method.the fountain pen can be sold at rs 10 each regardless of the level of production ,the manufacturer will incur cash cost of rs 25000 each year .the variable costs are estimated at rs 5 per pen The M.D of tia ltd ray,estimates to sell about 70000 fountain pens per year .the tax rate is 30% assume 20% cost of capital and rs 50000 additional working capital requirement .should the proposal be accepted ? give your advice to Miss tia ray Fixed cost: (5 years) Equipment: Rs 200000 Maintenance: Rs 125000 Working capital = Rs 50000 Variable cost: Rs 5 * 70000 * 5 years = Rs 1750000 Cost of capital = Rs 250000 * .20 * 5 years = Rs 250000 Total Cost = Rs 2325000 Revenue = Rs 10 * 70000 * 5 years = Rs 3500000 Profit before tax = Rs 3500000 Rs 2325000 = Rs 1175000

Tax rate = 30% Profit after tax = Rs 1175000 * (1-.30) = Rs 822500 Advice to Miss Tia Ray is to go ahead with the proposal. Case study 4 As an investment advisor you have been approached by a client called vikas for your advice on investment plan .he is currently 40 years old and has rs 600000 in the bank .he plans to work for 20years more and retire at age of 60.his present salary is rs.500000 per year. he expects his salary to increase at the rate of 12 percent per year until his retirement. vikas has decided to invest his bank balance and future savings in a balance mutual fund scheme that he believes will provide a return of 9 percent per year. you agree with his assessment .vikas seeks your help in answering several question below .in answering these question ignore the tax factor. 1) once he retires at the age of 60,he would like to withdraw rs 800000 per year for his consumption needs from his investments for the following 15 years .(he expects to live up to the age of 75 years) each annual with drawl will be made at the beginning of the year. how much should be the value of his investments when vikas turns 6o to meets this requirement need? 2) How much should vikas save each year for the next 20 years to be able to withdraws rs 800000 per year from the beginning of the 21 st year ? assume that the savings will occur at the end of each year. 3) Suppose vikas wants to donate rs 500000 per year in the last 5 years of his life to a charitable cause .each donation would be made at the beginning of the year. further he wants to bequeath rs 1000000 to his son at the end of life. how much should he have in his investment account when he reaches the age of 60 to meet this need for donation and bequeathing