Terminal Assignment

Financial Management

Time: 45 Minutes Maximum Marks: 20

Note: Attempt all Questions. Working notes shall constitute the part of your answer.

Q.1 Shubham Limited has the following capital structure: Equity Share Capital of Rs. 100 Each-
Rs.1,60,00,000, 12% Preference Shares–Rs. 16,00,000, 10% Debentures – 24,00,000 The Equity
shares of the company are quoted at Rs.110 and the company is expected to declare a dividend of Rs.
15 Per Share. Rate of Growth is 8% which is expected to be maintained.
1. Assuming the tax rate of 40%, Calculate WACC using Book Value Weights.
2. The Company wants to raise the additional term loan of Rs 20,00,000 @ 10%.
Calculate the revised WACC assuming that market price of equity shares has gone down to Rs 105.

. 12 Marks
OR
Abhishek Limited has following capital structure:
Equity Shares ( 2,00,000 Shares) – Rs. 40,00,000, 6% Preference Shares –Rs. 10,00,000, 8%
Debentures –Rs. 30,00,000.
The market price of the equity share is reported to be Rs. 20. It is expected that company will pay a
dividend of Rs. 2 per Share at the end of current year which will grow @7% forever. Tax Rate is 30%.
You are required to calculate:
a. WACC based on existing capital structure.
b. The new WACC if the company raises an additional Rs. 20,00,000 Debt by issuing 10%
debentures. This would result in increasing the expected dividend to Rs.3 and leave the
growth rate unchanged but the price of equity shares will fall to Rs. 15 per share.
c. The Cost of capital if in (b) above, the growth rate increases to 10%.
12 Marks
Q.2 From the following information relating to Nikhil Ltd, ascertain whether the firm is
following an optimal dividend policy as per Walter’s Model or not ?
Total Earnings: Rs 2,00,000, Dividend paid – Rs 1,50,000
Price/Earning Ratio -12.5, Number of Equity shares (Rs. 100 each) – 20,000
The firm is expected to maintain its rate of return on fresh investment. Also find out what
should be the P/E ratio at which the dividend policy will have no effect on the value of the
share ?
. 8 Marks
OR
Yashasvi Ltd. has outstanding 1,20,000 shares selling at Rs 20 per share. The company hopes to make
a net income of Rs 3,50,000 during the year ending 31 st March 2022. The company is considering to
pay a dividend of Rs. 2 per share at the end of the current year. The capitalization rate for risk class of
this company has been estimated to be 15%.
Assuming no taxes, answer following questions on the basis of Modigliani & Miller Model :
(i) What will be the price of a share at the end of the year if (a) dividend is paid ; (ii) dividend
is not paid ?
(ii) How many new shares must be issued by the company if the dividend is paid and
company needs Rs 7,40,000 for an approved investment expenditure during the year.
OR
Shikha Limited provides you following information :
Cost of Plant Rs. 10,000. Annual Cash Inflows are Rs. 1000, Rs. 1000, Rs. 2000 & Rs. 10,000 for
1st ,2nd ,3rd and 4th Year respectively.
You are required to calculate Pay Back Period, ,ARR, NPV and PI if the opportunity cost is 14%. Also
give your valuable comment on the project. PVAF @ 14% for 1st, 2nd, 3rd & 4th Year is 0.877,
1.647,2.322 & 2.914 resepctively.
8 Marks
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