NMIMS APRIL 2020 ASSIGNMENT CORPORATE FINANCE

CORPORATE FINANCE

1. ABC Ltd. is considering two financing plans to raise 8,00,000. The key information is as follows:

TABLE GIVEN BELOW:

• Plan
• Equity
• Debt
• Preference Shares
• 1
• 50%
• 50%
• 2
• 50%
• 50%.

Expected EBIT is 2,40,000.

Cost of Debt is 10% and the cost of Preference Shares is 10%.

The tax rate is 50%.

Equity shares of the face value of 10 each will be issued at a premium of 10 per share.

Calculate Earnings per share for plan 1 and 2 and suggest which one is better.

2. A Project costs 60,000 and is expected to generate cash inflows as:

Year

Cash inflows

• 10,000
• 12,000
• 15,000
• 18,000
• 20,000
• 22,000.

Calculate Net Present Value and Profitability Index. Comment whether project should be accepted or not. Assume cost of capital is 10%. Enumerate the steps of calculation of NPV.

3. The following information is given for Alpha Ltd.

Earnings per share

12

Dividend per share

3

Cost of Capital

18%

Internal Rate of Return On Investment

22%

Retention Ratio

75%

Calculate the market price per share using

a. Gordon Dividend Model

b. Walter Dividend Model.