Q1. All of you have decided to pursue EPGDM program.

Go back six months and think how you would use the co
Discuss the issues you may face while executing your decisions.

Ans.

Scenario:1 Payment made in 1 shot

SIT 1 Initial outflow at t=0 for MBA 354000 (PV)

case 1
Inflow
FD in bank @ 5.1% 372054 FV 1
compounded yearly

case 2

SIT 2 Mutual fund return @ 12% 396480 FV 2

case 3
Rate of interest @ 12% ROI

FV on monthly compounding interest 398896 FV 3

44896

Annual CTC = 1335000

Spend proportionate to CTC = 0.298798547

Interpretation:

By going with scenario 1, the toughest part is shelling out 354,000 in single
lump sum so that it can be invested into MBA program or as per case 1, case 2
& case 3 explained above.
NOTE: lump sum amount over a certain period gives more return than amounts
invested in certain intervals over the same period.

SIT 1: In situation 1 within scenario 1, if I consider doing MBA @ XIM university,

my chances of networth increasing wrt my CTC will be minimum 10% as per company
protocol

That means, post completion, getting elevated to senior role,

my net increase over the existing CTC = 133500

And, consequently, next successive year onwards over raised hike due to promotion,
will further propel my salary in which I can say that roughly, it will take minimum
 3 years to break even the value invested into MBA

SIT 2: In situation 2 within scenario 1, if I consider to invest money as per 3 cases

mentioned above, I found that monthly compounding interest returns give
the highest return. Here I am getting more than the invested amount but what
best I am missing is the knowledge which I would be getting as per situation 1
With knowledge at hand, my chances of getting more better opportunities
with exponential break is higher.

So, in scenario 1, my choice of decision goes with MBA programme.

For both situations:

1 Doing mba

2 As per respective cases explained above

I need to save minimum 59,000 INR per month.

Issues I faced while executing the scenario 1:

1. I have to cut my petrol costs which amounts to 12,000 per month

2. My dependencies on my personal car for weekend travel has to be
swapped with my bike, my savings per month would rise to 3000 per month.
ow you would use the concept of “Time Value of Money” to make a better decision?

Scenario: 2 Payment made in 4 installments

PV (=outflow) FV (=Inflow)
Initial outflow at t=0 88500 99120

outflow at t=3 months 88500 96465

outflow at t=6 months 88500 93810

outflow at t=9 months 88500 91155

ROI
Total 354000 380550 26550

Annual CTC = 1335000

Spend proportionate
to CTC = 0.2850561797753

As per the above scenario, a straightaway 30% hike is not feasible.

Considering the normal increment #+@ 10% on my annual gross, it will take approximately 3 years to get the ROI a break-e

Interpretation:

By going with scenario 2, the shelling out 88,500 INR in stage wise helps my financial goal
so that it can be invested into the MBA program as per pre-defined guidelines.

NOTE: periodic installments amount over a certain period gives lesser return than amounts
invested in lump sum over the same period.

SIT 1: In situation 1 within scenario 2, if I consider doing MBA @ XIM university,

my chances of networth increasing wrt my CTC will be minimum 10% as per company
protocol

That means, post completion, getting elevated to senior role,

my net increase over the existing CTC = 133500

And, consequently, next successive year onwards over raised hike due to promotion,
will further propel my salary in which I can say that roughly, it will take minimum
3 years to break even the value invested into MBA

So, in scenario 2, my choice of decision goes with MBA programme.

y 3 years to get the ROI a break-even point.

ge wise helps my financial goal

-defined guidelines.

sser return than amounts

XIM university,
mum 10% as per company

ed hike due to promotion,

, it will take minimum
HINDALCO INDUSTRIES LTD
Income Statement Fy 19 Fy 20
(in Billion INR)
Sales 1300 1180
COGS 1020 911.71
Gross Profit 280 268.29

Operating Expenses 125.14 115.25

Net Profit After Tax 154.86 153.04

Balance Sheet
(in Billion INR)
Cash 91.31 213.15
AR 113.89 93.45
Inventory 221.94 223.84
Total Current Assets 427.14 530.44
Plant & Equipment 687.1 741.13
Total Assets 1114.24 1271.57

AP 207.23 183
Bank Loan Payable 43.848 91.48
Total Current Liabilities 251.078 274.48

Contributional Capital 355.7 335.79

Retaind Earnings 218.05 246.05
Total Owner's Equity 573.75 581.84
Total Equities 824.828 856.32

NOTE:
Shareholders Equity 575.01 583.17

Retained Earnings 218.05 246.05

Treasury Stock -1.26 -1.33

 Fy 21 SUMMARY:

1320 1 How much sale per day?

1020 0.78461538462 How many days of sale in account receivable?
300 0.21538461538 How many days of COGS inventory?

117.32 0.09626153846 How many days of COGS in Account Payable?

182.68 0.11912307692 Operating Cycle of Hindalco Industr
Net Operating Cycle (=Cash Cycle) of Hindalco Industr

Interpretation:
84.55 With increase of Operating cycle, leads to requirement of more working ca
129.59 Cash cycle comparison with 3 Fys seems on a steady path.
306.68
520.82
811.64
1332.46

282.8
75.48
358.28

378.25
285.76
664.01
1022.29

665.33

285.76

-1.32
 Fy 19 Fy 20 Fy 21 CALCULATION SHEET:
Description:
3.562 3.233 3.616 Per Day Sales
32 29 36 How many days of sales in AR?
79 90 110 Per day COGS

74 73 101 How many days of COGS in AP?

111 119 146 How many days of COGS in Inventory?
37 45 44

Operating Cycle
Cash Cycle
ment of more working capital
Aggressive
Conservative

Perday Operating expenses

Operating expenses for Operating Cycle

Working Capital Need

Aggressive
Conservative

Every Business wants to grow

Growth Target (25%)
Perday Sales Required
 Fy 19 Fy 20 Fy 21

3.562 3.233 3.616

32 29 36
2.795 2.498 2.795

74 73 101
79 90 110

Fy 19 Fy 20 Fy 21

111 119 146

37 45 44
Fy 19 Fy 20 Fy 21
104.070 113.043 124.018
132.638 146.308 160.494
Fy 19 Fy 20 Fy 21
0.343 0.316 0.321
38.192 37.423 46.792

Fy 19 Fy 20 Fy 21
142.262 150.466 170.810
170.830 183.731 207.286

Fy 19 Fy 20 Fy 21
1625.000 1475.000 1650.000
4.452 4.041 4.521
Q3. A company's cost of equity is 20%, while its cost of debt is 12%. Interest payment is tax-deductible, and the corporate tax
The firm has retained earnings of Rs.2,000 Crores; it raises another Rs.2,000 Crores in debt to fund a project, which will cost Rs
The project is likely to generate a perpetual cash flow of Rs.X per year from t=1 onwards. What must be X for the project to b

Ans. As per WACC formula,

WACC = ((E/V) x Re )+( (D/V) x Rd x (1 - Tc)), where:

E = equity market value

Re = equity cost

D = debt market value

V = the sum of the equity and debt market values

Rd = debt cost

Tc = the current tax rate for corporations

Data-

Cost of equity = Re= 20%

Cost of debt= Rd= 12%

Equity= E= 2000 cr

Debt= D= 2000 cr

Total Capital= V= 4000 cr

Corporate Tax= Tc= 25%

WACC = ((E/V) x Re )+( (D/V) x Rd x (1 - Tc))

=((D27/D31)*D23) + ((D29/D31)*D25*(1-D33))

WACC= 0.145 = 14.50%

Let Perpetual Cash Flow is X

Present value = Cash Flow / Discount rate

=> Present value = (Perpetual Cash Flow) / (Discount rate )
=> 4000 = X ÷ 14.50%

=> X= 580 crores

deductible, and the corporate tax-rate is 25%.
fund a project, which will cost Rs.4,000 Crores.
hat must be X for the project to be acceptable?
Q4. A company has 3 clearly demarcated independent divisions (X, Y, Z), and it is a debt free company. The management of th
The CFO of the company has mandated that the allocation of capital will be based on the cost of equity of their respective div
The CFO of the division Z insists that the allocation should be based on the cost of equity of the whole company.
The cost of equity of division X is 15%, cost of equity of division Y is 25%.
What should be cost of equity of division Z so that capital allocation decision of the company will not affect the funding of the

Ans:

Data:

Company A
CFO CFO - A
Debt Zero / Debt free
Divisions X Y Z
CFO CFO - X CFO - Y CFO - Z
Re (for respective divisions) 15% 25% ?

WACC = ((E/V) x Re) + ((D/V) x Rd x (1 - Tc))

As per above WACC, we know that when the firm goes debt-free, then the WACC of the company becom

Suppose the cost of equity of division Z = the cost of capital of the company as z%

Then, Since the allocation of capital is based on the cost of capital of the individual divisions as per the co

Therefore, z% = (15/(40+z)) *15% + (25/(40+z)) *25% + (z/(40+z) *z%

=> z% = (1/(40+z)) *(2.25 + 6.25 + (0.01*(z)^2))

Dividing by (1/(40+z)) on both sides, then we arrive,

=> 0.4z + 0.01*(z)^2 = 8.5 + 0.01*(z)^2
=> 0.4z = 8.5
=> z = 21.25%
Hence, Cost of Equity for division Z = 21.25%
ompany. The management of the company decided to remain a debt free company going forward.
of equity of their respective divisions.
e whole company.

will not affect the funding of the project for the division Z, in case it decides to use the cost of equity of the whole company.

he WACC of the company becomes equal to the cost of equity of the company too.

individual divisions as per the company CFO's mandate, then the optimum capital structure of the firm is 15:25: z = X: Y: Z
e whole company.

15:25: z = X: Y: Z