14MBA22USN

||Jai Sri Gurudev||BGS Institute of TechnologyDepartment of Management StudiesII SEM MBA II Internals- Financial ManagementMax. Marks: 50 Time: 2hrPart A- Answer any two ( 3 marks)1. A firm can invest Rs.12000 in a project with a life of 4 years. The projected cash inflows are as follows:Year1:Rs.3000, Year 2: Rs.4000, Year 3: Rs.5000, Year 4:Rs.3500The cost of capital is 10%. Calculate the NPV of the project.2. Define Swap and Mention its types.3. Define derivative and Mention its types.

Part B- Answer any two ( 7 marks)4. There are two projects X & Y. each project requires an investment of Rs.10000. you are required to rank these projects according to pay back method.Year Cash flows

Project XProject Y

123453000400050007000800020003000400080009000

5. Rank the following projects using Net present value and payback period:Project Initial Investment Annual cash flowsLife in years

A B C D E 5000006000006500008000007500001000001500001250002000002200007 years5 years9 years5 years6 years

6. The expected cash flows of a project are as follows:Year 012345

Cash flow -1000002000030000400005000030000

The cost of capital is 12%. Calcualte: NPV, Profitability Index & pay back Period

Part C- Answer any three ( 10 marks)7. There are two projects X & Y. each project requires an investment of Rs.10000. you are required to rank these projects according to pay back method.Year Cash flows

Project XProject Y

123453000400050007000800020003000400080009000

8. Assuming that a firm pays tax at 50%, compute the after tax cost of capital, in the following cases:A perpetual bond sold at par, coupon rate of interest being 7%.A ten year 8% Rs.1000 bond, sold at rs.950 less underwriting commission.Rs. 100 par value, preference share sold at Rs.100n with a 9% dividend and redemption price of Rs.110, if a company redeems in 5 years.An ordinary share selling at a current market price of Rs.120 and paying a current dividend of rs.9 per share, which is expected to grow at a rate of 8%.9. From the following capital structure of a company, calculate the overall cost of capital using I) Book value weights ii) Market Value weightsSource Book value Market value Cost of capital

Equity share (Rs.10 shares)Retained earnings Preference share capitalDebentures 4500015000100003000090000-100003000014%13%10%5%

10. A company in consultations with its merchant bankers has come up with the following levels of new financing from various sources and the corresponding costs. Determine the breaking points and prepare weighted marginal cost of capital schedule.Source %Range (Rs.cr)Cost

Equity 50%0 to 10Above 1016%17%

Debt 30%0 to 15Above 157%8%

Preference 20%0 to 12Above 1212%13%

11. ABC Ltd. has the following book value capital structure:Rs. In Millions Equity capital (10 Million shares @ 10/share)Rs.100Preference capital-11% (100000 shares, Rs.100 per share)Rs.10Retained earningsRs.120Debentures, 13.5% (500000 debentures, Rs.100 each)Rs.50The next expected dividend per share is Rs.1.50. the dividend per share is expected to grow @ 7%. The market per share is Rs.20. preference shares, redeemable after 10 years is currently selling at for Rs.75 per share. Debentures redeemable after 6 years are selling for Rs.80 per debenture. The tax rate is 50%. Calculate te weighted average cost of capital Using book value weights.Project A and project B cost a corporation Rs.50000 and Rs.25000 respectively. Their cash flows are given below. You are requested to find out the IRR for each project and decide on that basis which project is more profitable.Year Cash flows

Project AProject B

1234550001500030000200001000010000100001000010000-