to instal new miiling controls at a cost of Rs 50 00o T

P.5.1 A company is considering an investment proposal e

and salvage value. 1ne tax rate is 35 per cent. Assume the firm uses ctrainh:
facility has a life expectancy of 5 years no
linedepreciation and the same is allowed for tax purposes. The estimated cash flows before depreciation and tax
tax
investment proposal are as follows:
(CFBT) from the

Year CFBT
Rs 10,000
2 10,692
3 12,769
4 13,462
5 20,385
Compute the following:
(i) Pay back period,
(ii) Average rate of return,
(ii) Internal rate of return,
(iv) Net present value at 10 per cent discount rate,
(V) Profitability index at 10 per cent discount rate.
 A project required an initial outlay of 20,000. It generates
year ending profits of 12,000, 7 6,000, 74,000, F 10,000 and 10,000 from
the end of the first year to the end of the fifth year. The required rate of return is
10% and pays tax at 50% rate. The project has a life of 5 years and is depreciated
on straight line method basis. Assume that the above year ending profits are
before depreciation and tax. You are required to compute
(i) Pay back period
(ii) Average rate of return
(ii Net present value (BBA GGSIPU, 2010)
 Proposal I Proposal II
Investment Estimated T 20,000
9,500
Inflows
Year 1 7 4,000 T8,000
Year 2 4,000 8,000
Year 3 4,500 12,000

Suggest the most attractive proposal on

the basis of the NPV method
considering that discounting rate is 12%. Also find out the IRR of the two
proposals. (BBA GGSIPU Delhi, Dec. 2012)9
 . International Foods Limited has the following capital

structure.
Book Market
Particulars Value Value

Equity Capital
(25,000 shares of 10 each at par 2,50,0000 4,50,000
Preference Capital (500 shares of { 100
each at par carrying 13% dividend) 50,000 45,000
Reserve and Surplus 1,50,000
Debentures (1,500 debentures of T 100
each at par carrying 14% interest) 1,50,000 1,45,000
6,00,000 6,40,000
The expected dividend per share is 7 1.40 and the dividend per share is
expected to grow at a rate of 8% forever. Preference shares are redeemable after
5 years at par whereas debentures are redeemable after 6 years at par. The tax
rate for the company is 50%.
You are required to compute the weighted average cost of capital for existing
capital structure using market value as weights.
IRCOm /Hons ) Dolhi 1999 BBA GGSIPU 2011. adanted
 tax at a + 0 0 rate, Compute the after
14. Assuming that the firm pays income
cases:
tax cost of capital in the following

( 15% preference shares sold at par.

(7 A perpetual bond sold at par, coupon rate being 15%.
27) A ten year 8% T 1,000 per bond sold at F 950.
(iv) An equity share selling at a market price ofT 110 and paying a current
dividend of f 10 per share which is expected to grow at a rate of 10%.