NMIMS
Global Access
School for Continuing Education (NGA-SCE)
Course: Corporate Finance
Internal Assignment Applicable for April 2022 Examination
1. The
capital structure of ABC Pvt. Ltd is as follows:
Equity share capital (each share of Rs. 10) = Rs. 10,00,000
Debentures with a coupon rate of 9.5% = Rs. 8,00,000
Reserves and surplus = Rs. 7,00,000
Revenue from the business activities for the company is Rs. 1.50 crores. Its
variable cost is 8% of the revenue, fixed operating cost is Rs. 48 lakhs and
the company pays income tax at a rate of 25%.
a.
Calculate financial leverage, operating leverage and combined leverage for the
company.
b.
Determine the likely level of EBIT for EPS of (i) Rs. 20, (ii) Rs. 30, and (iii)
Rs. 45
(10 Marks)
2. The
equity shares of a publicly traded company are priced at Rs. 450 with P/E
(Price to Earnings) ratio of 15. The announces a dividend of Rs. 9 per shares.
The shareholders of the company expect the dividend to grow at a rate of 6%
every year, and the cost of equity for the company is 15%. According to the
dividend relevance approach suggested by Walter and Gordon, what would be the
impact of dividend announcement on the market price of the shares of the
company if required rate of return for investors is (i) 12%, (ii) 15% and (iii)
18%. (10 Marks)
3. A
manufacturing company forecast that it is likely to sell 6,00,000 units for the
year 2021. The processing cost of an order is Rs. 150 and the carrying cost per
unit of inventory is Rs. 12. The lead time of an order is 8 days.
a. What
would be the economic order quantity (EOQ) and re-order point assuming 300 days
in a year. (5 Marks)
b. The
company implements business process reengineering which results in to reduction
of 20% in cost of an order, 10% in carrying cost per unit of inventory and 25%
in lead time of an order. What would be the new EOQ and re-order point. (5
Marks)
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