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Corporate Finance
1.
The capital structure of ABC Pvt. Ltd is as follows:
Equity
share capital (each share of Rs. 10)
= Rs. 10,00,000
Debentures
with a coupon rate of 9.5% = Rs. 8,00,000
Reserves and surplus = Rs. 7, 00,000
Revenue
from the business activities for the company is Rs. 1.50 crores. Its variable
cost is 8% of the revenue, fixed operating cost is Rs. 48 lakhs and the company
pays income tax at a rate of 25%.
a.
Calculate financial leverage, operating leverage and combined leverage for the
company.
b.
Determine the likely level of EBIT for EPS of (i) Rs. 20, (ii) Rs. 30, and
(iii) Rs. 45
Introduction
In the analysis of
financial information, leverages depict the impact of one variable of income
statement of an entity over the other. Leverage is a broad term can be
associated with calculating impact for borrowing decisions or for other
financial decisions. As far as financial leverage is concerned, the impact of
interest payment charge on earnings of an entity can be seen whereas from
operating leverage, the impact of directly attributable costs over revenue can
be observed. When
2.
The equity shares of a publicly traded company are priced at Rs. 450 with P/E
(Price to Earnings) ratio of 15. The announces a dividend of Rs. 9 per shares.
The shareholders of the company expect the dividend to grow at a rate of 6%
every year, and the cost of equity for the company is 15%. According to the
dividend relevance approach suggested by Walter and Gordon, what would be the
impact of dividend announcement on the market price of the shares of the company
if required rate of return for investors is (i) 12%, (ii) 15% and (iii) 18%. (10 Marks)
Introduction
Valuation of shares of
a company can is an activity through true value of a company can be assessed.
Several methods suggested by scholars by which valuation is done, each method
has its own set of significant rules and assumptions and pros and cons. The
value determined through different methods could be different. Out of those,
there are these two valuation techniques, one of which is given by Professor
James E. Walter, known as Walter’s Model, and the other one is developed
3.
A manufacturing company forecast that it is likely to sell 6,00,000 units for
the year 2021. The processing cost of an order is Rs. 150 and the carrying cost
per unit of inventory is Rs. 12. The lead time of an order is 8 days.
a.
What would be the economic order quantity (EOQ) and re-order point assuming 300
days in a year. (5 Marks)
Introduction
Economic Order
Quantity and Re-order Point calculations are a part of inventory control
management. Inventory controls regulate the inventory levels within the entity
to minimize inventory holding and purchasing costs and maximize the benefit
earned through it. The Chartered Institute of Management
b.
The company implements business process reengineering which results in to
reduction of 20% in cost of an order, 10% in carrying cost per unit of
inventory and 25% in lead time of an order. What would be the new EOQ and
re-order point. (5 Marks)
Introduction
Business Process
Reengineering (BPR) is the process of implementing new business processes to
make larger fundamental changes in the organization to attain business
objectives and goals in a dynamic business environment.
Concept
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