NMIMS- Course: Corporate Finance

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NMIMS Global Access

School for Continuing Education (NGA-SCE)

Course: Corporate Finance

1. ABC Ltd. is considering two financing plans to raise ₹ 8,00,000. The key information is as follows:

TABLE GIVEN BELOW:

Plan	Equity		Debt		Preference Shares
1		50%		50%
2		50%		50%

Expected EBIT is ₹ 2,40,000.

Cost of Debt is 10% and cost of Preference Shares is 10%.

Tax rate is 50%.

Equity shares of the face value of ₹ 10 each will be issued at a premium of ₹ 10 per share.

Calculate Earnings per share for plan 1 and 2 and suggest which one is better.

(10 Marks)

2. A Project costs ₹ 60,000 and is expected to generate cash inflows as:

Year	Cash inflows(₹)
1	10,000
2	12,000
3	15,000
4	18,000
5	20,000
6	22,000

Calculate Net Present Value and Profitability Index. Comment whether project should be accepted or not. Assume cost of capital is 10%. Enumerate the steps of calculation of NPV.

3. The following information is given for Alpha Ltd.

Earnings per share	₹ 12
Dividend per share	₹ 3
Cost of Capital	18%
Internal Rate of Return On Investment	22%
Retention Ratio	75%

Calculate the market price per share using

a. Gordon’s Dividend Model (5 Marks)

b. Walter’s Dividend Model (5 Marks)

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