( )CoST

(iv) Tax rate- 50%

the face value of F10 each
() Equity shares of will be issued atat a
(vi)Total investment to be raised 40,00,000. premium of E10 per share.
(vi) Expected earnings before interest and tax
m thoe above proposals the
management F18,00,000.
wants to take advice from you for
plan after computing the following: appropriate
1. Earnings per share
2. Financial break-even point
3 Compute the EBIT range
among the plans for indifference, Also indicate if any of the
plans dominate.

Q8 [Page No. [Source:

There are two companies A and B having net operating
Bis income of
F15,00,000each. Company
levered company whereas company Ais all equity
Debt employed by company B is of E700000 @11%. company.
The tax rate applicable to both the
companies is 25%.
Calculate total earning available for equity and debt for both the
companies.
Q-9Page No. J [Source:
The following data relates to four firms:
Firm A B C
EBIT 200,000 *3,00,000 5,00,000K6,00,000
Interest K20,000 60,000 2,00,000 2 40,000
Equity Capitalization rate el 12% 16% 15% 18% |e
Assuming that there is no tax and interest rate on debt is 10%, determine value and WACC
of each firm using Net income Approach. What happens if Firm A borrows 10 lakhs @10%
to repay equity capital?
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FINANCIAL MANAGEMENT
Q. - 10 [Page No. (Source:
Alpha Limited and Beta Limited are identical except for Capital Structures. Alpha has
(All percenTages are50%jn
Debt and 50% Equity, whereas Beta has 20% Detbt and 80%
Market-Value terms). Equity.
The borrowing Rate for both Companies So. -So
is 8% in ano-tax world, and capifal mar kets are)
assumed to be perfect.
1.
(a) If you own 27% of the Stock of
Albha. what is your return if the Company has
Net Operating Income lof *3,60,000 and the Overall Capitalization Rate of the
Company, KO is 18%?
(b) What is the Implied Required Equity 4
2. Beta has the same Net Return of Alpha?
Operating
(a) What is the Implied Required Income as Alpha.
Equity Return of Beta?
(b) Why does it differ from that of
Alpha?
Q. - 11 [Page No.
[Source: 1Q-4 DR
ABC Ltd adopts Constant -
WACC]Approach, and believes that its Cost of Debt and Overall
Cost of Capital is at 9% and 12%
If the ratio of the Market Valuerespectively. Re Q1 Ry-ll
of Debt to the Market Value ofEquity is
Return do Equity Shareholders earn? Assume that there are no 0.8, what Rate of
taxes.
Q.- 12 [Page No. [Source:
-G] DR
One-Third of the total Market Value of Hari Limited consists of Loan
of 10%. Another Company, Guru Limited, is Stock, which has cost
identical in every respect to Hari Limited, except
that its Capital Structure is All - Equity, and its Cost of Equity is
16%. Ro 6
According to Modigliani and Miller, if we ignored taxation and tax relief on Debt Capital.
What would be the Cost of Equity of Hari Limited?

13 [Page No. [Source:

-6]
PNR Ltd and PXR Ltd are identical in every respect except Capital
not employ Debts in its Capital Structure whereas PXR Ltd employs Structure/PR Ltd does
12% Debentures
amounting to R20,00,000.The Following additional information is given:
º Income Tax Rate is 30%
EBIT is 5,00,000
r The Equity Capitalization Rate of PNR Limited is 20% and
r All assumptions of Modigliani - Miller Approach are met.
Calculate:
1) Value for both the Companies,
<) Weighted Average Cost of Capital for both the Companies.
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