SELF-STUDY ASSESSMENT

Instructions :
1. Maximum Marks – 10
2. Last Date for Submission – April 2, 2022
3. Answer (Any Two) Sub-Questions from Q.1 and Q.2
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Q.1 Explain briefly (Any two) of the followings (in not more than 500 words) : (5 Marks)

A. Indian Financial Markets

B. Factors affecting capital structure
C. Fintech

Q. 2 Solve the following exercises (Any two) (5 Marks)

A. An investor deposits `10,000 in a bank account for 5 years at 8% interest. Find out the
amount which he will have in his account if interest is compounded (a) annually (b) semi-
annually (c) quarterly and (d) continuously.

B. If the discount/required rate is 10%, compute the present value of the cashflow streams
detailed below: (a) `100 at the end of year 1 (b) `100 at the end of year 5 (c) `100 for the
next 10 years (for year 1 to 10)

C. A firm has EBIT of `40,000. The firm has a 10% debentures of `1,00,000 and its current
equity capitalization rate is 16%. Calculate the current value of the firm and its overall cost
of capital according to traditional approach?
The firm is considering increasing the leverage by issuing additional `50,000 debentures
and using the proceeds to retire that amount of equity. If, however, as the firm increases
the proportion of debt, cost of debenture would rise to 11% and cost of equity to 17%.
But if the firm issues `1,00,000 debentures instead of `50,000 (that is having `2,00,000
debentures) and uses the proceeds to retire that amount of equity, than due to increased
financial risk cost of debt would be 12.50% and cost of equity would be 20%. Advice the
firm about the optimum capital structure. Also calculate the total value of the firm and the
overall cost of capital for all the three alternatives.

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