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Financial Management

1. Should you accept the following project based on the NPV of the Project? Initial investments are as

follows: All the values are in Lakhs

Land Machinery Technical Know-how Patents

200 100 50 20

Expected PAT and Depreciation for Next 5 years is as follows:

Year 1 Year 2 Year 3 Year 4 Year 5

PAT 100 115 120 135 140

Depreciation 74 74 74 74 74

Terminal Values are as follows:

Land Machinery Technical Know-how Patents

300 80 50 10

Cost of Capital is as follows:

Cost of Debt 10% (Post Tax) Weight of Debt 0.4

Cost of Equity 15% Weight of Equity 0.6

2. Find out the EVA of the Company when following data is given: All values are in Lakhs

Average Capital Employed

1000 Tax Rate 30%

Cost of Debt 10% Weight of Debt 400

Cost of Equity 15% Weight of Equity 600

PBIT 500 Interest Paid 50

3. Should I go for leasing or buying the following property: (Cost of Capital = 15%)

Lease Rent Rs 60000/- per year for next 5 years

Loan Rate

15% Depreciation Rate WDV Method / Per Annum

25%

Present Value of the Property

Rs 500000/- Tax Rate

30% Salvage Value Rs 150000/-

4. Should I opt for, debt or equity, for raising Rs. 20 crores for the extension of the following projects, if

my intension is to increase the EPS for shareholders: (All the Values are in, 000)

Estimated PBIT 12500 No. of existing Shares 1800

Interest payment per annum

2800 Face Value of a share Tax Rate

Rs 100/- (35%)

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Find out the level of PBIT, at which I am indifferent between Debt and Equity for raising funds.

What would be the new level of breakeven EBIT if bond holders decide to redeem Rs 1 crore

worth of Bonds every year?

5. Define any 3 of the following in details:

EVA

Which one is better between NPV and IRR and Why?

Breakeven EBIT

Leasing with Example

Dividend irrelevancy theory