1 PES Institute of Technology Departmen t of MBA Financial Management (12MBA25) 5 Marks Questions (Skill Based) 1) You will receive a sum of Rs.1,10,000/- after 6 years. Assuming an interest rate of 9%, today, what is the value of that sum? 2) Indian Bank will give an interest of 10% per anum on a fixed deposit of Rs.1,00,000/ - kept by you for 4 years. What is the value of your deposit on maturity? 3) If a debenture of Rs.50,000/- requires an interest payment of Rs.6,000/- p.a. and assuming a tax rate of 35%, what is the cost of capital? 4) A company issues 5,000, 12% debentures of Rs.100 each at a discount of 5%. The commission payable to the underwriters and brokers is RS.25,000/-. The debentures are redeemable after 5 years. Compute the after tax cost of d ebt assuming a tax rate of 50%. 5) A company issues 1,000 10% preference shares of Rs.100 each at a discount of 5%. Costs of raising capital a re Rs.2,000. Compute the cost of preference capital. 6) Compute the after tax cost of capital of a preferred share sold at Rs.100 with a 9% dividend and a redemption price of Rs.110, if the company redeems it in five years. 7) “Retained earnings are cost free source of fund”. Comment. 8) A firm’s Ke(return availab le to share holders) is 15%, the average tax rate of share holders is 40% and it is expected that 2% is brokerage cost that share holders will have to pay while investing their dividends in alternative securities . what is the cost of retained earnings ? 9) You have come across the following investment opportunity: Rs 2,000 at the end of each year for the first 5 years plus Rs 3,000 at the end of each year from years 6 through 9 plus Rs 5,000 at the end of each year from years 10 through 15. (a) How much wi ll you be willin g to pay for this investmen t if y our required rate of retur n is 14 per cent? (b) What w ill be your answer if payments are received at the beginning of each year? 10) You have an opportunity cost of capital of 15 per cent. Will you accept the following investment? Cash Flows (Rs) C0C1+ 50,000–56,000
