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Corporate Finance-NMIMS Sep 18

Corporate Finance-NMIMS Sep 18

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Q1: A company has sales of 4,00,000 units at ₹5 per unit, variable cost ₹0.60 per unit, fixed cost ₹2,00,000 and interest charges of ₹3,500. Compute degree of operating leverage and financial leverage and comment on the values of each leverage.

(10 Marks)

 

 

Q2: A choice is to be made between the two competing proposals which require an equal investment of ₹50000 and are expected to generate net cash flows as under:

 

Years

Project A(₹)

Project B (₹)

1

25000

10000

2

15000

12000

3

10000

18000

4

Nil

25000

5

12000

8000

6

6000

4000

 

Cost of capital of the company is 10%. Which proposal should be selected using NPV method? (10 Marks)

 

Q3: 3. Gamma Corporation was a 20 years old company and its capital structure consisted of 1000 equity shares of ₹100 each, 500 preference shares(10%) of ₹50 each and 500 debentures(8%) of ₹30 each. The management of the company wanted to estimate what would be the value of EPS if the values of EBIT were changed and tax rate is 35%.

a) Calculate EPS if the level of EBIT is ₹1,00,000 (5 Marks)

b) Calculate EPS if the level of EBIT is ₹1,50,000 (5 Marks)

 

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