PART II : FINANCIAL MANAGEMENT 1. Answer the following ...

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Balance Sheet of Mahurat Limited as on 31st December, 2008 Liabilities Rs. Assets Rs. Share Capital 3,00,000 Fixed Assets 26,00,000 Reserves and Surplus 12,00,000 Current Assets: Long term loans 22,00,000 Stock of Raw Material 122 3,31,500 Current liabilities 11,00,000 Stock of Finished Goods 3,97,800 6. (i) Calculation of Net Cash Flow Year Profit before dep. and tax Depreciation (20% on WDV) Debtors 12,82,192 ________ Cash 1,88,508 48,00,000 48,00,000 (Rs. in lakhs) PBT PAT Net cash flow (1) (2) (3) (4) (5) (3) + (5) 1 160 400 � 20% = 80 80 40 120 2 160 (400 � 80)� 20% = 64 96 48 112 3 180 (320 � 64)� 20% = 51.2 128.8 64.4 115.6 4 180 (256 � 51.2)� 20% = 40.96 139.04 69.52 110.48 5 150 (204.8 � 40.96) = 163.84* �13.84 �6.92 156.92 *including depreciation and loss on disposal of assets. (ii) Calculation of Net Present Value (NPV) (Rs. in lakhs) Year Net Cash 12% 14% 16% Flow D.F P.V D.F P.V D.F P.V 1 120 .89 106.8 .88 105.60 .86 103.2 2 112 .80 89.6 .77 86.24 .74 82.88 3 115.6 .71 82.08 .67 77.45 .64 73.98 4 110.48 .64 70.70 .59 65.18 .55 60.76 5 156.92 .57 89.44 .52 81.60 .48 75.32 438.62 416.07 396.14
Less: Initial Investment 400.00 400.00 400.00 NPV 38.62 16.07 (3.86) (iii) Advise: Since Net Present Value of the project is maximum at 12% = 38.62 lakhs, therefore the project should be implemented. (iv) Calculation of Internal Rate of Return (IRR) 16.07�2% IRR �14% � 16.07 �( �3.86) 32.14 �14% � 19.93 = 14% + 1.61% = 15.61%. 7. (a) Statement showing Computation of Weighted Average Cost of Capital by using Book Value Proportions Source of Finance Amount (Book value) (Rs. in crores) Weight (Book value proportion) 123 Cost of Capital Weighted Cost of Capital (a) (b) (c)= (a)x(b) Equity capital 15 0.256 0.16 (Refer to working note 1) 0.04096 11% Preference capital 1 0.017 0.1543 (Refer to working note 2) 0.00262 Retained earnings 20 0.342 0.16 (Refer to working note 1) 0.05472 13.5% Debentures 10 0.171 0.127 (Refer to working note 3) 0.02171 15% term loans 12.5 0.214 0.09 0.01926 ____ ____ (Refer to working note 4) ________ 58.5 1.00 0.013927 Weighted Average Cost of Capital 13.93% (b) Statement showing Computation of Weighted Average Cost of Capital by using Market Value Proportions Source of Finance Amount (Rs. in crores) Weight (Market value proportions) Cost of Capital Weighted Cost of Capital (a) (b) (c)=(a)x(b) Equity capital 60.00 0.739 0.16 0.11824
Page 1 and 2: PART II : FINANCIAL MANAGEMENT 1. A
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PART II : FINANCIAL MANAGEMENT 1. Answer the following ...

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