PART II : FINANCIAL MANAGEMENT 1. Answer the following ...
PART II : FINANCIAL MANAGEMENT 1. Answer the following ...
PART II : FINANCIAL MANAGEMENT 1. Answer the following ...
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Less: Initial Investment 400.00 400.00 400.00<br />
NPV 38.62 16.07 (3.86)<br />
(iii) Advise: Since Net Present Value of <strong>the</strong> project is maximum at 12% = 38.62 lakhs,<br />
<strong>the</strong>refore <strong>the</strong> project should be implemented.<br />
(iv) Calculation of Internal Rate of Return (IRR)<br />
16.07�2%<br />
IRR �14%<br />
�<br />
16.07 �(<br />
�3.86)<br />
32.14<br />
�14%<br />
�<br />
19.93<br />
= 14% + <strong>1.</strong>61% = 15.61%.<br />
7. (a) Statement showing Computation of Weighted Average Cost of Capital by<br />
using Book Value Proportions<br />
Source of Finance Amount<br />
(Book value)<br />
(Rs. in<br />
crores)<br />
Weight<br />
(Book<br />
value<br />
proportion)<br />
123<br />
Cost of Capital Weighted<br />
Cost of<br />
Capital<br />
(a) (b) (c)= (a)x(b)<br />
Equity capital 15 0.256 0.16<br />
(Refer to working note 1)<br />
0.04096<br />
11% Preference<br />
capital<br />
1 0.017 0.1543<br />
(Refer to working note 2)<br />
0.00262<br />
Retained earnings 20 0.342 0.16<br />
(Refer to working note 1)<br />
0.05472<br />
13.5% Debentures 10 0.171 0.127<br />
(Refer to working note 3)<br />
0.02171<br />
15% term loans 12.5 0.214 0.09 0.01926<br />
____ ____ (Refer to working note 4) ________<br />
58.5 <strong>1.</strong>00 0.013927<br />
Weighted Average Cost of Capital 13.93%<br />
(b) Statement showing Computation of Weighted Average Cost of Capital by<br />
using Market Value Proportions<br />
Source of Finance Amount<br />
(Rs. in crores)<br />
Weight<br />
(Market<br />
value<br />
proportions)<br />
Cost of Capital Weighted<br />
Cost of<br />
Capital<br />
(a) (b) (c)=(a)x(b)<br />
Equity capital 60.00 0.739 0.16 0.11824
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