Strategic Financial Management:We provide Answer Sheet of NMIMS April 2019 assignments at nominal rates : Contact us at assignmentssolution@gmail.com

NMIMS Global Access
School for Continuing Education (NGA-SCE)
Course: Strategic Financial Management
Internal Assignment Applicable for April 2019 Examination
Assignment Marks: 30
1. Fusion Limited’s dividend is growing at a rate of 12% per annum. This growth rate
is expected to continue for 3 years. Thereafter, the growth rate will decline to 8% for
the next 2 years. After that, the year on year growth in dividends is expected to be a
stable 6% rate forever. If the last dividend was Rs 6 per share and the required rate
of return on equity is 20%, what is the fair value per share.
(10 Marks)

2. Mr. Rathi is about to retire. His employer offers him post-retirement benefits by way
of the following two options
a) A consolidated amount of Rs 15 lacs
b) An annual pension of Rs 3 lacs in the 1st year, Rs 4 lacs in the 2nd year, Rs
5 lacs in the 3rd year and Rs 6 lacs in the 4th year.
Which option should Mr. Rathi go for, assuming a discount rate of 10%?
(10 Marks)

3. Alpha Limited has a debt equity ratio of 3:2. The pre-tax cost of debt is 12%.
Effective tax rate for the company is 30%. The equity beta of Alpha is 1.5. Market
risk premium is 8% and the risk-free rate is 7%.
a) Discuss and Compute the cost of equity of Alpha Limited (5 Marks)
b) Discuss WACC and determine the WACC based on after tax cost of debt and
cost of equity?
(5 Marks)

NMIMS April 2018 Assignments: Contact us for answers at assignmentssolution@gmail.com

Strategic Financial Management

1. A company is evaluating a proposal to replace a machine costing Rs. 800000 and having a written down value of Rs. 400000. The machine has a remaining economic life of 5 years after which it will have no salvage value. However, if sold today, it will fetch an amount equal to its book value. The new machine is expected to cost Rs. 1400000. It is also expected to have a life of 5 years with a scrap value of Rs. 400000. Owing to its technological superiority, the new machine is expected to contribute additional annual benefit (before depreciation and tax) of Rs. 400000. The company’s opportunity cost of capital is 10%. The tax rate applicable to the firm is 30%. The company follows Straight Line Method of Depreciation for its machines. Should the company replace the old machine with the new one? (10 Marks)



2. The country’s leading oil company is planning to set up a Greenfield project to carry out exploration work in a recently identified prospective site. Keeping the high risks associated with this project in mind, funding the project is turning out to be tricky issue for the company. You, being a subject specialist, have been approached by the company to assist it in project funding. Identify the possible sources of fund for this Greenfield project. Also, guide the company through the various stages involved in the project financing. (10 Marks)



3. A) A company is considering an investment of Rs. 500 million in a project. Expected earnings before interest and tax (EBIT) are Rs. 150 million per year. The operational risks associated with the project are fairly low, and EBIT is expected to remain steady during the project tenure. The company can raise equity, 14% preference shares, 10% debentures, or any combination thereof. Face value of equity shares is Rs. 100. Tax rate is 30%. The company is exploring the following four financing options:

 Issue equity capital at par value

 Raise 50% by equity share capital and 50% by preference capital

 Raise 50% by equity share capital, 25% by preference capital, and 25% by debenture

 Raise 25% by equity share capital, 25% by preference capital, and 50% by debenture

Identify the best financing option for the company.

3. B) Which of the above four options will be the best, if the expected EBIT is only Rs. 60 million per year, everything else remaining the same?