Corporate Finance - NMIMS solved assignments

 

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Corporate Finance

September 2021 Examination

 

1. The capital structure of ABC Pvt. Ltd is as follows:

Equity share capital (eachshareofRs.10) = Rs.16, 00,000

Debentures with a coupon rate of 10%   = Rs. 10, 00,000

Reserves and surplus                            = Rs.15, 00,000

Revenue from the business activities for the company is Rs. 2.00 crores. Its variable cost is 10% of the revenue, fixed operating cost is Rs. 60 lakhs and the company pays income tax at a rate of 25%. (10Marks)

a. Calculate financial leverage, operating leverage and combined leverage for the company.

b. Determine the likely level of EBIT for EPS of (i) Rs.45, (ii) Rs.60, and(iii) Rs. 75.

 

Ans 1.

Introduction:

The presence of operational (fixed) expenses ensures that a corporation will have operating leverage at any point in time, regardless of output. These fixed expenses are not subject to sales, and they must be paid irrespective of the amount of income available to the company. As a result, operating leverage is described as a company's ability to use operational expenditure to increase profits before interest

2. The equity shares of a publicly traded company are priced at Rs.600 with P/E (Price to Earnings) ratio of 20. The company announces a dividend of Rs.12 per shares. The share holders of the company expect the dividend to grow at a rate of 5% every year, and the cost of equity for the company is 16%. 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) 10%, (ii) 15% and (iii) 20%. (10Marks)

Ans 2.

Introduction:

The dividend is the portion of net profit that is distributed to shareholders. A company's dividend policy is essential for financial management because it determines the amount of money that will be delivered to shareholders and the amount of profit that the company will retain. The ability to maintain income is essential for the development of a firm. The firm may require shareholders to pay even more enormous dividends in the future. As a result, both healthy growth and increased

 

 

3. A manufacturing company forecast that it is likely to sell 8, 00,000 units for the year 2021. The processing cost of an order is Rs.200 and the carrying cost per unit of inventory is Rs.16. The lead time of an order is 5 days.

(a) What would be the economic order quantity (EOQ) and reorder point assuming360days in a year? (5Marks)

 

Ans 3a.

Introduction:

Economic Order Quantity (EOQ) is a purchase quantity that is best for reducing inventory expenditures such as cost of ownership, cost of a shortage, and order cost, among other things. When demand, ordering, and maintenance costs are steady, the EOQ formula is the most effective—because of this, assuming that demand for the firm's products remains constant

 

 

(b) Thecompanyimplementsbusinessprocessreengineeringwhichresultsinto reduction of 25% in cost of an order, 15%in carrying cost per unit of inventory and 20% in lead time of an order. What would be the new EOQ and reorder point. (5Marks)

Ans 3b.

Introduction:

An Economic Order Quantitative (EOQ) is the number of units added to inventory by each order to reduce the overall costs of merchandise, such as holding, order costs, and shortfall charges. An EOQ is used to reduce inventory costs, such as holding, order costs, and shortfall charges. The EOQ is used to ensure that inventory levels are maintained at all times. The continuous inventory

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