Proficiency in Business Finance

Assignment 1

Q1. Write short notes on following (with suitable examples):

i. Role of Finance Manager in a Business Organisation
ii. Wealth Maximisation Vs. Profit Maximisation
iii. Agency Problem
iv. Time Value of Money and Its Applications in Business Decision Making
v. Simple Interest Vs. Compounding Interest
Q2. (a) A company requires ₹60,00,000 at the end of five years from now. How much amount
should this company deposit every year in a sinking fund so that the requisite amount is arranged
at the end of fifth year? Interest rate applicable on this fund is 8% per annum.
(b) Meenakshi has taken a 5-year loan of ₹ 6,00,000 at an interest of 9% per annum from her
company for purchasing a car. The company requires five equal end-of-year installments for the
payment of this loan. Find out the amount of installment.
PV=A*PVFA5,9%
600000=A*3.8897
154253.5414

(c) An investor has invested Rs. 100000 in a fund that offers a compounding interest of 8% per
annum. How much time it will take for the amount to become Rs. 500000?

(d) Amit will be getting Rs. 50 Lacs after 25 years from now. Find out the equivalent value today
if his required rate of return is 9% per annum.
Q3. Tokyo Industries Ltd. is a reputed multinational company which is planning to start its
business operations in India. Management of Tokyo Industries Ltd. is considering three
investment proposals i.e. Project A, Project B and Project C for this purpose. These projects are
more or less same as far as their risk profile is concerned. A committee of five analysts has
estimated cash inflows and outflows related to these projects. These estimated cash flows are as
follows:
Cash Flows (₹ Crore)
Projects C0 C1 C2 C3 C4
Project A - 600 250 250 200 300
Project B - 600 250 250 300 200
Project c - 600 200 250 300 300

The management of this company wants your help in selecting the best investment project.
Kindly help the management by ranking these projects by using Payback Period, Discounted
Payback Period, NPV, PI and IRR methods.
Discounting rate is 12%.
Which of these project / projects would you recommend to the management of Tokyo Industries
Ltd. if:
i. These projects are mutually exclusive.
ii. These projects are independent.

Q4. Calculate weighted average cost of capital (WACC) for Chirag Pharmaceuticals Ltd.
through Book Value as well as Market Value Method (Before tax as well as after tax) with the
help of following data:
Equity Share Capital (1,00,000 shares of 10 each) - ₹ 10,00,000
12 % Preference Capital - ₹ 20,00,000
10% Debentures - ₹ 30,00,000
Other Information:
i. Ke = 15%
ii. Market Price of Equity Share is ₹ 125.
iii. Preference Shares are priced at par.
iv. Debentures are priced at 80%.
v. Applicable tax rate is 30%.