Total Time: 1 hrs.

Total Marks: 10

Instructions

This is a closed book exam proctored online you can use your scientific calculator if you need. Y
rough page to do your scribbling. All the questions are compulsory and need to be answered in
spreadsheet given. Each question has a designated worksheet, please answer them in the respe
worksheet only. The paper is divided into three sections.

Section 1 consists of a mini case available in the worksheet titled I.1. Metaland Minicase.
calculator if you need. You can use
need to be answered in the
nswer them in the respective

etaland Minicase.
I.1. Metaland is a major manufacturer of light commercial vehicles. It has a very strong R&D centre which has deve
successful models in the last fifteen years. However, two models developed by it in the last few years have not don
prematurely withdrawn from the market. The engineers at its R&D centre have recently developed a prototype for
commercial vehicle that would have a capacity of 4 tons.After a lengthy discussion, the board of directors of Metala
carefully evaluate the financial worthwhileness of manufacturing this model which they have labeled Meta 4.
You have been recently hired as the executive assistant to Vijay Mathur, Managing Director of Metaland. Vijay Math
you with the task of evaluating the project.
Meta 4 would be produced in the existing factory which has enough space for one more product. Meta 4 will requi
machinery that will cost Rs.400 million. You can assume that the outlay on plant and machinery will be incurred ove
year. For the sake of simplicity assume that 50 percent will be incurred right in the beginning and the balance 50 pe
incurred after 1 year. The plant will commence operation after one year. Meta 4 project will require Rs.200 million t
working capital. You can assume that gross working capital investment will occur after 1 year.
The proposed scheme of financing is as follows: Rs.200 million of equity, Rs.200 million of term loan, Rs.100 million
advance, and Rs.100 million of trade credit. Equity will come right in the beginning by way of retained earnings. Ter
capital in advance will be raised at the end of year 1. The term loan is repayable in 8 equal semi-annual instalments
each. The first instalment will be due after 18 months of raising the term loan. The interest rate on the term loan w
The levels of working capital advance and trade credit will remain Rs.100 million each, till they are paid back or reti
years, after the project commences, which is the expected life of the project. Working capital advance will carry an
percent.
Meta 4 project is expected to generate a revenue or Rs.750 million per year. The operating costs (excluding depreci
expected to be Rs.525 million per year. For tax purposes, the depreciation rate on fixed assets will be 25 percent as
down value method. Assume that there is no other tax benefit.
The net salvage value of plant and machinery is expected to be Rs.100 million at the end of project life. Recovery o
be at book value.
The income tax rate is expected to be 30 percent.
Vijay Mathur wants you to estimate the cash flows from two different point of View:

(a) Cash flows from the point of all investors (which is also called the explicit cost funds point of view).

(b) Cash flows from the point of equity investors.

 &D centre which has developed very
ast few years have not done well and were
developed a prototype for a new light
oard of directors of Metaland decided to
have labeled Meta 4.
or of Metaland. Vijay Mathur has entrusted

product. Meta 4 will require plant and

chinery will be incurred over a period of one
ning and the balance 50 percent will be
will require Rs.200 million toward gross
year.
f term loan, Rs.100 million of working capital
y of retained earnings. Term loan and working
al semi-annual instalments of Rs.25 million
st rate on the term loan will be 14 percent.
l they are paid back or retired at the end of 5
pital advance will carry an interest rate of 12

ng costs (excluding depreciation and taxes) are

ssets will be 25 percent as per the written

of project life. Recovery of working capital will

point of view).