Time: 2 Hours Code: Max Marks: 60

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Note:
1. Question No.1 is compulsory
2. Answer all Three questions from 2 to 4 each carries 15 marks


1 a. NPV
b. IRR
c. WACC
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2
Anupama Limited is considering the replacement of its existing machine which is obsolete. The company is faced with
two alternatives:
a. To buy MACHINE X which is similar to the existing machine OR
b. To go for MACHINE Y which is more expensive and has much greater capacity. The cash flows, at the the
present level of operations, under the two alternatives are given:
Cash flows in lakhs of rupees at the end of year
Machine 0 1 2 3 4 5
Machine X -25 Nil 5 20 14 14
Machine Y -40 10 14 16 17 15
The companys cost of capital is 10%. The FM tries to evaluate the machines by calculating following:
1. Net Present Value
2. Profitability Index
3. Pay back period
He is unable to make up and seeks your help. The Present value of Rs.1 at 10% discount rate are:
Year 0 1 2 3 4 5
P.V 1.00 0.91 0.83 0.75 0.68 0.62
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2
1. Rights issue vs. Bonus issue
2. A company issues 10% irredeemable debentures of Rs.1,00,000. The company is in the 50% tax bracket.
Calculate the cost of debt before as well as after tax if the debentures are issued at 1. Par 2. 10% discount and 3.
10% premium.

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3 1. Role of SEBI in India
2. Green Show option
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3 1. A company expects a dividend of Rs.2 per share next year and is expected to grow at 10% per year perpetually.
Determine the cost of equity capital, assuming the market price per share is Rs.50.
2. From the following information calculate the net present value of the two projects and suggest which of the two
projects should be accepted assuming a discount rate at 10%
Particulars Project A Project B
Initial investment Rs.20000 Rs.30000
Estimated Life 5 years 5 years
Scrap value Rs.2000 Rs.5000
The profit before depreciation and after taxes as follows
Particulars Year 1 Year 2 Year 3 Year 4 Year 5
Project A Rs 5,000 10,000 10,000 3,000 2,000
Project B Rs 20,000 10,000 5,000 3,000 2,000
PV factor @
10%
.909 .826 .751 .683 .621

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4 1. Discounted Cash flow and Non discounted cash flow techniques
2. The available fund for capital expenditure in a year in a firm is estimated at Rs.1.6 lakhs. The mutually exclusive
investment proposals along with profitability index are given below:-
Project A B C D E F G
Initial
Outlay
25 35 25 80 20 40 20
PI 0.94 1.16 1.14 1.25 1.05 1.09 1.19
Which of the above project should be accepted and why?

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4 1. Importance of Term loan
2. Assuming No taxes and given the EBIT, interest at 12% and equity capitalization rate calculate the total market
value of Firm A & B from the following data:
Firm EBIT Rs Interest Rs Equity capitalization rate

X 3,00,000 30,000 10%
Y 4,00,000 70,000 15%
Determine Composite cost of capital for each of the above firm.
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