NMIMS Global Access

School for Continuing Education (NGA-SCE)

Course: Corporate Finance
Internal Assignment Applicable for September 2020 Examination

Assignment Marks: 30

Instructions:

 All Questions carry equal marks.

 All Questions are compulsory
 All answers to be explained in not more than 1000 words for question 1 and 2 and for
question 3 in not more than 500 words for each subsection. Use relevant examples,
illustrations as far as possible.
 All answers to be written individually. Discussion and group work is not advisable.
 Students are free to refer to any books/reference material/website/internet for
attempting their assignments, but are not allowed to copy the matter as it is from the
source of reference.

 Students should write the assignment in their own words. Copying of assignments from
other students is not allowed.

 Students should follow the following parameter for answering the assignment questions.

For Theoretical Answer For Numerical Answer

Assessment Parameter Weightage Assessment Parameter Weightage
Introduction 20% Understanding and usage 20%
Concepts and Application 60% of the formula
related to the question Procedure / Steps 50%
Conclusion 20%
Correct Answer & 30%
Interpretation

1. Amit works in an organization which has debt and equity in its capital structure. The
net income of the firm is ₹3,00,000. The organization pays ₹ 75,000 every year as
interest component to debenture holders. Calculate the weighted average cost of capital
 NMIMS Global Access
School for Continuing Education (NGA-SCE)
Course: Corporate Finance
Internal Assignment Applicable for September 2020 Examination

if the cost of equity is 14% and cost of debt is 10%. If the company’s new project will
provide a return of 11%, suggest whether company should make the investment or not.
(10 Marks)

2. Mr. Mehta was working with Delta Ltd for the past ten years. The company was
planning for expansion and required a funding of ₹ 25,00,000 for the same. He was
considering two financial plans and expected EBIT due to expansion was ₹ 12,00,000.
The firm was considering to raise funds through equity(Face value ₹10) and the debt
@8%. Suggest should the company raise capital through all equity or through equal
proportion of debt and equity on the basis of EPS. Assume tax rate as 35%
(10 Marks)

3. Solve the following:

a. A company earns ₹ 7 per share. The cost of capital is 10%, the rate of return on
investment is 12% and the dividend payout ratio is 20%. Calculate the value of each
share by using Walter’s Model. (5 Marks)

b. XYZ Limited has a paid-up share capital of ₹15 lakhs of ₹10 each. The company has a
dividend payout rate of 15%. Annual growth rate is expected to be 3%. The
capitalisation rate is 15%. Calculate the value of the share of XYZ based on Gordon’s
Model. (5 Marks)

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