35222 era report: 2750 download pdf

If the re-investment rate applicable to the interest receipts from this bond is 10 percent, what will be your yield to maturity? Keerthi Limited is expected to give a dividend of Rs. Keerthi pays out 60 percent of its earnings. What is the PVGO? Adinath Limited is expected to give a dividend of Rs. Adinath pays out 30 percent of its earnings. You are considering purchasing the equity stock of Electra Limited.

The current price per share is Rs. You expect the dividend a year hence to be Re. You expect the price per share of Electra stock a year hence to have the following probability distribution.

Price a year hence Rs. You are considering purchasing the equity stock of Empire Corporation. You expect the price per share of Empire Corporation stock a year hence to have the following probability distribution. Both the stocks are currently selling for Rs. The rupee return dividend plus price change of these stocks for the next year would be as follows: Economic condition High growth Low growth Stagnation Recession Probability 0.

Which of the above four options would you choose? Solution: a For Rs. The risk-free return is 8 percent and the return on market portfolio is 16 percent. Stock X's beta is 1. If the previous dividend per share of stock X was Rs. The risk-free return is 7 percent and the return on market portfolio is 13 percent. Stock P's beta is 0. If the previous dividend per share of stock P was Rs. The risk-free return is 6 percent and the expected return on a market portfolio is 15 percent. If the required return on a stock is 18 percent, what is its beta?

The risk-free return is 9 percent and the expected return on a market portfolio is 12 percent. If the required return on a stock is 14 percent, what is its beta?

The risk-free return is 5 percent. The required return on a stock whose beta is 1. What is the expected return on the market portfolio? The risk-free return is 10 percent. The required return on a stock whose beta is 0. The required return on the market portfolio is 15 percent. The beta of stock A is 1. The required return on the stock is 20 percent. The expected dividend growth on stock A is 6 percent. The price per share of stock A is Rs. What is the expected dividend per share of stock A next year?

What will be the combined effect of the following on the price per share of stock? The required return on the market portfolio is 16 percent. The required return on the stock is 22 percent. The expected dividend growth on stock A is 12 percent. The returns of two assets under four possible states of nature are given below : State of nature Probability Return on asset 1 Return on asset 2 1 0. What is the standard deviation of the return on asset 1 and on asset 2? What is the covariance between the returns on assets 1 and 2?

What is the coefficient of correlation between the returns on assets 1 and 2? Solution: State of Probability Return on Deviation Return on Deviation Product of nature asset 1 of return asset 2 of the deviation on asset 1 return on times from its asset 2 probability mean from its mean 1 2 3 4 5 6 2 x 4 x 6 1 0.

Assume equiproportional investment. A portfolio consists of 4 securities, 1, 2, 3, and 4. What is the standard deviation of portfolio return? What is the variance of a portfolio containing six securities which are equally weighted? Solution: The expected return on the market portfolio is: 0. Nitin Gupta had invested Rs. As per his will this portfolio of stocks were to be inherited by his wife alone. As the partition among the family members had to wait for one year as per the terms of the will, the portfolio of shares had to be maintained as they were for the time being.

The will had stipulated that the job of administering the estate for the benefit of the beneficiaries and partitioning it in due course was to be done by the reputed firm of Chartered Accountants, Talwar Brothers.

Meanwhile the widow of the deceased was very eager to know certain details of the securities and had asked the senior partner of Talwar Brothers to brief her in this regard.

For this purpose the senior partner has asked you to prepare a detailed note to him with calculations using CAPM, to answer the following possible doubts. What is the expected return and risk standard deviation of the portfolio? What is the scope for appreciation in market price of the three stocks-are they overvalued or undervalued?

You find that out the three stocks, your firm has already been tracking two viz. Detailed instructions had been left on how the estate should be shared between the two , once both of them attained the age of majority.

A week before his demise he had taken a fancy to the capital market and had invested a sizeable amount in equity shares, specifically, Rs. As the partition among the siblings had to wait for at least one more year as the girl was still a minor, the portfolio of shares had to be maintained as they were for the time being.

The will had entrusted the job of administering the estate for the benefit of the beneficiaries and partitioning in due course to the reputed firm of Chartered Accountants, Karaniwala and Karaniwala. Meanwhile the young beneficiaries were very eager to know certain details of the securities and had asked the senior partner of the firm to brief them in this regard.

So it is slightly undervalued. In the case of Best Industries stock, as the expected return is slightly less than the required return of Century Limited can be considered as overvalued as its required return is far in excess of the expected return which is likely to drive the market CHAPTER 10 1. A stock is currently selling for Rs. The exercise price of a call option is Rs.

Use the option-equivalent method. Use the risk- neutral method. An equity share is currently selling for Rs The exercise price of call option on this share is Rs. Use the option — equivalent method.

Use the risk — neutral method. An equity share is currently selling for Rs. The exercise price of a call option on this share is Rs. What is the value of the call option if the risk-free rate is 8 percent? What is the value of the call option, if the risk-free rate is 6 percent? Use the risk-neutral method. Use the normal distribution table and resort to linear interpolation.

Consider the following data for a certain share. Use the normal distribution table given at the end of this booklet and resort to linear interpolation. Use normal distribution table and resort to linear interpolation?

Lakshmi Limited has a current value of The face value of its outstanding bonds is These are 1 year discount bonds with an obligation of in year 1. The firm has been registering spectacular growth in recent years. With a view to broad base its investments, the firm had applied for the shares of Universal Industries a month back during its IPO and got allotment of shares thereof.

Recently Mr. Sharma had attended a seminar on capital markets organised by a leading bank and had decided to try his hand in the derivatives market. So, the very next day you joined the firm, he has called you for a meeting to get a better understanding of the options market and to know the implications of some of the strategies he has heard about. For this he has placed before you the following chart of the option quotes of Universal Industries and requested you to advise him on his following doubts, based on the figures in the chart.

Universal Industries Option Quotes. List out the options which are out-of-the-money. What are the relative pros and cons i. Solution: 1 Calls with strike prices and are out —of —the- money.

The risk however is that the firm will forfeit the gains that it would have enjoyed if the share price rises above Rs. It should however be prepared to forfeit the gains if the share price remains above Rs. However, if stock price goes above Rs. So long as the share price hovers between R. Matrix Associates is evaluating a project whose expected cash flows are as follows: Year Cash flow Rs. Sigma Corporation is evaluating a project whose expected cash flows are as follows: Year Cash flow Rs.

Solution: 3. Solution: Terminal Value 3. Dumas Company is evaluating a project whose expected cash flows are as follows: Year Cash flow 0 - Rs. Solution: - , 1. You are evaluating a project whose expected cash flows are as follows: Year Cash flow 0 -1,, 1 , 2 , 3 , 4 , What is the NPV of the project in 's if the discount rate is 10 percent for year 1 and rises thereafter by 2 percent every year?

The cash flows associated with an investment are given below: Year Cash flow 0 Rs. Your company is considering two mutually exclusive projects, A and B. Project A involves an outlay of Rs. Project B calls for an outlay of Rs. The company's cost of capital is 14 percent.

Your company is considering two projects, M and N. Each of which requires an initial outlay of Rs. The expected cash inflows from these projects are: Year Project M Project N 1 85 2 3 4 90 a.

What is the payback period for each of the projects? What is the discounted payback period for each of the projects if the cost of capital is 15 percent? If the two projects are independent and the cost of capital is 15 percent, which project s should the firm invest in? If the two projects are mutually exclusive and the cost of capital is 12 percent, which project should the firm invest in? If the two projects are mutually exclusive and the cost of capital is 20 percent, which project should the firm invest in?

If the cost of capital is 13 percent, what is the modified IRR of each project? Solution: Project M The pay back period of the project lies between 2 and 3 years. Interpolating in this range we get an approximate pay back period of 2. Project N The pay back period lies between 2 and 3 years. Interpolating in this range we get an approximate DPB of 2.

This assumes that there is no capital constraint. So we choose the project with the higher NPV, i. If an equipment costs Rs. Assume that the cost of capital is 12 percent Solution: Let NCF be the minimum constant annual net cash flow that justifies the purchase of the given equipment.

Assume that the cost of capital is 14 percent Solution: Let NCF be the minimum constant annual net cash flow that justifies the purchase of the given equipment. How much can be paid for a machine which brings in an annual cash inflow of Rs. Assume that the discount rate is 15 percent. Solution: Define I as the initial investment that is justified in relation to a net annual cash inflow of Rs. Assume that the discount rate is 16 percent. However, two models developed by it in the last few years have not done well and were prematurely withdrawn from the market.

After a lengthy discussion, the board of directors of Metaland decided to carefully evaluate the financial worthwhileness of manufacturing this model which they have labeled Meta 4. You have been recently hired as the executive assistant to Vijay Mathur, Managing Director of Metaland. Vijay Mathur has entrusted you with the task of evaluating the project. Meta 4 would be produced in the existing factory which has enough space for one more product.

Meta 4 will require plant and machinery that will cost Rs. You can assume that the outlay on plant and machinery will be incurred over a period of one year. For the sake of simplicity assume that 50 percent will be incurred right in the beginning and the balance 50 percent will be incurred after 1 year.

The plant will commence operation after one year. Meta 4 project will require Rs. You can assume that gross working capital investment will occur after 1 year. The proposed scheme of financing is as follows : Rs. Equity will come right in the beginning by way of retained earnings. Term loan and working capital advance will be raised at the end of year 1. The term loan is repayable in 8 equal semi-annual instalments of Rs. The first instalment will be due after 18 months of raising the term loan.

The interest rate on the term loan will be 14 percent. The levels of working capital advance and trade credit will remain at Rs. Working capital advance will carry an interest rate of 12 percent. Meta 4 project is expected to generate a revenue of Rs. The operating costs excluding depreciation and taxes are expected to be Rs. For tax purposes, the depreciation rate on fixed assets will be 25 percent as per the written down value method.

Assume that there is no other tax benefit. The net salvage value of plant and machinery is expected to be Rs.

Recovery of working capital will be at book value. The income tax rate is expected to be 30 percent. Vijay Mathur wants you to estimate the cash flows from three different points of view: a. Cash flows from the point of all investors which is also called the explicit cost funds point of view. Cash flows from the point of equity investors.

Plant and equipment 2. Net working capital 3. Revenue 4. Operating costs 75 Depreciation Profit before tax Profit after tax 0. Net salvage value of plant and equipment 9. Recovery of net working capital Initial investment Terminal Equity funds 2. Revenues 3. Operating costs 4. Depreciation 75 Interest on working capital 12 12 12 12 12 6. Interest on term loan 28 Profit before tax 85 Profit after tax Recovery of working capital Repayment of term loans 50 50 50 50 Repayment of working capital advance Retirement of trade credit Initial investment 1 Net cash flow - It manufactures a range of bulk drugs, technically called APIs active pharmaceutical ingredients.

Max is considering a new bulk drug called MBD You have recently joined Max as a finance officer and you report to Prakash Singh, Vice President Finance , who coordinates the capital budgeting activity. You have been asked to develop the financials for MBD After discussing with marketing, technical, and other personnel, you have gathered the following information.

The MBD-9 project has an economic life of 5 years. It would generate a revenue of Rs. Thereafter, revenues will decline by Rs. Operating costs costs before depreciation, interest, and taxes will be 60 percent of revenues.

MBD-9 is expected to erode the revenues of an existing bulk drug. Due to this erosion there will be a loss of Rs. While there may be some other impacts as well, they may be ignored in the present analysis. MBD-9 will require an outlay of Rs. The same will be financed by equity and term loan in equal proportions.

The term loan will carry an interest of 8 percent per annum and will be repayable in 4 equal annual instalments, the first instalment falling due at the end of year 1. For tax purposes, the depreciation rate will be 15 percent as per the written down value method.

The net salvage value of plant and machinery after 5 years is expected to be Rs. The net working capital requirement will be 20 percent of revenues.

Assume that the investment in net working capital will be made right in the beginning of each year and the same will be fully financed by working capital advance carrying an interest rate of 10 percent per annum. At the end of 5 years the working capital is expected to be liquidated at par. Estimate the net cash flows relating to explicit cost funds investor claims over the 5-year period.

Estimate the net cash flows relating to equity over the 5-year period. Fixed assets Net working Revenues Operating costs Loss of contribution 4. Depreciation 6. Tax 3. Profit after tax 7. Net salvage value of Recovery of Operating cash Terminal cash inflow Net cash flow Equity funds Interest on working 1.

Interest on term 1. Profit before tax 7. Tax 2. Profit after tax 5. Net salvage value Repayment of 5. Repayment of The expected net salvage value of the capital equipment after 5 years is Rs. The net working capital will be adjusted at the beginning of the year in relation to the expected sales for the year.

For example, the net working capital at the beginning of year 1 i. The use of these facilities will necessitate reducing the production of other pharmaceutical preparations of the firm.

This will mean a reduction of Rs. Fixed assets 80 2. Net working capit- al level Investment in net working capital Sales Raw material cost Variable labour cost 5. Fixed annual oper- ating cost 4. Loss of contribu- tion margin Profit before tax 9. Profit after tax 6. NSV of fixed assets Initial investment in fixed assets 80 In NWC Gale is expected to have a product life cycle of five years after which it will be withdrawn from the market. The sales from this product is expected to be as follows: Year 1 2 3 4 5 Sales Rs.

The expected net salvage value after 5 years is Rs. Working capital level will be adjusted at the beginning of the year in relation to the sales for the year. At the end of five years, working capital is expected to be liquidated at par, barring an estimated loss of Rs. Raw material cost : 40 percent of sales Variable manufacturing cost : 20 percent of sales Fixed annual operating and : Rs.

Required: a Estimate the post-tax incremental cash flows for the project to manufacture Gale. Solution: Cash flows for the Gale Project Rs. Capital equipment 2. Level of working capital 70 85 80 - 3. Revenues 4. Raw material cost 5. Variable manufacturing cost 6. Operating and maintenance cost 2. Variable selling expenses Bad debt loss 5 Tax 6. Net Salvage Value of Capital Equipment Recovery of Working Capital 75 Initial Investment Working Capital investment 70 15 25 10 20 Level of working capital 20 30 40 30 20 ending 3.

Raw material cost 40 60 80 60 40 5. Variable mfrg cost 10 15 20 15 10 6. Fixed annual operating and 8 8 8 8 8 maintenance costs 7. Variable selling expenses 10 15 20 15 10 8. Depreciation 30 Profit before tax 2 Tax 0.

Profit after tax 1. Operating cash flow The old machine bought a few years ago has a book value of Rs. It has a remaining life of four years after which its net salvage value is expected to be Rs.

It is being depreciated annually at a rate of 20 percent the WDV method. The working capital associated with this machine is Rs. The new machine costs Rs. It is expected to fetch a net salvage value of Rs. The depreciation rate applicable to it is 20 percent under the WDV method. The new machine is expected to bring a saving of Rs.

The incremental working capital associated with the new machine is Rs. The tax rate applicable to the firm is 34 percent. Solution: a A. Initial outlay Time 0 i. Cost of new machine Rs. Salvage value of old machine , iii Incremental working capital requirement , iv. Operating cash flow years 1 through 4 Year 1 2 3 4 i. Post-tax savings in manufacturing costs , , , , ii. Incremental depreciation , , , , iii. Tax shield on incremental dep. Recovery of NWC at the end Terminal cash flow year 4 Net Cash Flow Salvage value of old machine , iii.

Recovery of incremental working capital , iv. It has a remaining life of five years after which its net salvage value is expected to be Rs. It is being depreciated annually at a rate of 30 percent the WDV method. The depreciation rate applicable to it is 25 percent under the WDV method. The tax rate applicable to the firm is 33 percent. Cost of new machineRs. Operating cash flow years 1 through 4 Year 1 2 3 4 5 Post-tax savings in manufacturing costs Depreciation on new machine Depreciation on old machine 1,, 1,, 1,, 1,, 1,, Incremental dereciation Tax shield on incremental dep.

Salvage value of new machine Rs. Terminal ii. A machine costs Rs. What is the present value of the tax savings on account of depreciation for a period of 5 years if the tax rate is 34 percent and the discount rate is 16 percent? What is the present value of the tax savings on account of depreciation for a period of 4 years if the tax rate is 36 percent and the discount rate is 18 percent?

A project requires an investment of , The unit selling price is 70 and the unit variable cost is Fixed costs other than depreciation will be , per year. Depreciation will be 80, per year for tax purposes. The life of the project is 5 years. The effective tax rate is 33 percent.

The cost of capital is 14 percent. What is the financial break-even point? The unit selling price is 50 and the unit variable cost is Depreciation will be 85, per year for tax purposes. The life of the project is 6 years. The effective tax rate is 20 percent.

The cost of capital is 12 percent. What is the financial break-even Point? You are the financial manager of Navneet Limited. Navneet is planning to set up a factory at Aurangabad.

Your project staff has developed the following cash flow forecast for the factory. Assume that the cost of capital is 15 percent. The range of values that the underlying variables can take is shown below: Underlying Variable Pessimistic Expected Optimistic Investment Rs. Calculate the effect of variations in the values of the underlying variables on NPV.

Calculate the accounting break-even point. Investment 2. Sales Variable costs as a pecentage of sales 60 55 70 3. Variable costs Fixed costs 60 50 65 5. Pre-tax profit 50 Profit after tax 35 Annual cash flow from operations 85 Net present value It is also assumed that the salvage value of the investment after ten years is zero. You are the financial manager of Magnum Corporation. Magnum is planning to set up a Machine Tools plant at Chennai. Your project staff has developed the following cash flow forecast for the project.

Assume that the cost of capital is 14 percent. Sales Variable costs as a percentage of sales 70 60 75 3. Fixed costs 90 80 95 5. Annual cash flow from operations It is also assumed that the salvage value of the investment after eight years is zero.

Rakesh Limited is considering the risk characteristics of a certain project. The firm has identified that the following factors, with their respective expected values, have a bearing on the NPV of this project. Initial investment Rs. Calculate the sensitivity of net present value to variations in a quantity manufactured and sold, b price per unit, and c variable cost per unit.

A project involving an outlay of Rs. Cash Flow Prob. Solution: Define At as the random variable denoting net cash flow in year t. Calculate the expected net present value and standard deviation of net present value of this investment, if the risk-free interest rate is 7 percent. Boldman is considering an investment which requires a current outlay of Rs. Calculate the expected net present value and standard deviation of net present value of this investment, if the risk-free interest rate is 10 percent.

Dinesh Associates is considering an investment project which has an estimated life of four years. The market price of these debentures is Rs.

Working capital loan carries an interest rate of 11 percent. Its last dividend was Rs. Use the CAPM to estimate the cost of equity and employ the weights in the target capital structure. Working capital loan carries an interest rate of 10 percent. The risk-free rate is 8 percent and the market risk premium is 6 percent. The risk-free rate is 7 percent and the market risk premium is 8 percent.

Solution: Given: 1. North Star Limited has 30 million equity shares outstanding. The book value per share is Rs. North Star has two debenture issues outstanding. The first issue has a face value of Rs. It will mature in 6 years. The second issue has a face value of Rs. It will mature in 7 years. North Star also has a bank loan of Rs. Solution: The book value and market values of the different sources of finance are provided in the following table.

The book value weights and the market value weights are provided within parenthesis in the table. Jaihind Corporation has million equity shares outstanding. Jaihind has a debenture issue outstanding with a face value of Rs. The coupon rate for a debenture is 13 percent coupon, and it sells for 85 percent of its face value.

It will mature in 4 years. Jaihind also has a bank loan of Rs. Solution: The book value and market values of the different sources of finance are provided in the following table Rs. Friends Associates manufactures industrial solvents. If Friends Associates can issue debt at an interest rate of 10 percent, what is its cost of equity?

Solution: a Given: rD x 1 — 0. The company has a plan to invest Rs. This will be financed as follows: Retained earnings Rs. The next dividend expected is Rs. The expected rate of dividend growth is 6 percent. Additional equity can be issued at Rs. The interest rate applicable to additional debt would be as follows: First Rs.

Required: a At what amounts of new capital will there be breaks in the marginal cost of capital schedule? The expected rate of dividend growth is 10 percent. Modern Limited has the following book value capital structure: Equity capital 25 million shares, Rs. The dividend per share is expected to grow at the rate of 10 percent. The market price per share is Rs. Preference stock, redeemable after 8 years, is currently selling for Rs. Debentures, redeemable after 5 years, are selling for Rs.

The tax rate for the company is 34 percent. The second batch will consist of Rs. The third chunk will consist of Rs. The marginal cost of capital in the chunks will be as under First batch : 0. Range of total financing Weighted marginal cost of Rs. Madhu Corporation has the following book value capital structure: Equity capital 30 million shares, Rs.

The dividend per share is expected to grow at the rate of 15 percent. Preference stock, redeemable after 6 years, is currently selling for Rs. Debentures, redeemable after 6 years, are selling for Rs. The tax rate for the company is 35 percent. Imperial Industries is currently at its target debt-equity ratio of 0. It is considering a proposal to expand capacity which is expected to cost Rs.

The tax rate for the firm is 35 percent. Ganesh, the CFO of the company, has considered two financing options : i Issue of equity stock. The issuance cost will be 2 percent. What is the NPV of the proposal after taking into account the floatation costs?

Pan India Limited is currently at its target debt-equity ratio of 1. The tax rate for the firm is 33 percent. Ravikiran, the CFO of the company, has considered two financing options : i Issue of equity stock. The issuance cost will be 1. An appropriate basis for accepting or rejecting the projects would be to compare the expected rate of return and the required rate of return for each project. Based on this comparison, we find that all the four projects need to be rejected.

Plastic emulsion for a building costs Rs. Distemper painting costs Rs. How does the UAE of plastic emulsion painting compare with that of distemper painting if the cost of capital is 15 percent? The initial outlay on a security system would be Rs. The operating costs are expected to be as follows: Year Operating Costs in Rs.

What is the UAE if the cost of capital is 12 percent? The initial outlay for an internal transportation system would be Rs. What is the UAE if the cost of capital is 16 percent? Hansen Electricals is evaluating a capital project requiring an outlay of Rs. It is expected to generate a net cash inflow of Rs. The opportunity cost of capital is 18 percent. Hansen Electricals can raise a term loan of Rs. The principal amount will be repayable in 4 equal annual instalments, the first instalment falling due at the end of the second year.

The balance amount required for the project can be raised by issuing external equity. The issue cost is expected to be 10 percent. The effective tax rate for the company is 30 percent i What is the base case NPV? Alok Appliances is evaluating a capital project requiring an outlay of Rs. The opportunity cost of capital is 16 percent.

Alok Appliances can raise a term loan of Rs. The principal amount will be repayable in 5 equal annual instalments, the first instalment falling due at the end of the first year. The issue cost is expected to be 9 percent.

The effective tax rate for Alok Appliances is 33 percent. Mitra Chemicals is evaluating a capital project requiring an outlay of Rs. The opportunity cost of capital is 15 percent. Mitra Chemicals can raise a term loan of Rs. The term loan will carry an interest of 9 percent per year payable annually. The issue cost is expected to be 7 percent. Bearings Limited received a subscription for , shares as against , shares that were offered and fully underwritten.

The underwritten commitments of 5 underwriters P, Q, R, S, and T are as under: Underwriting commitment Shares procured 90, 70, P Q 80, 70, R , 85, S , , T , , Determine the liability of each underwriter. Welcome Industries received a subscription for , shares as against 1,, shares that were offered and fully underwritten.

The underwritten commitments of 4 underwriters M, N , O and P are as under: Underwriting commitment Shares procured , , M N , , O , , P , , Determine the liability of each underwriter. The equity stock of Paramount Corporation is selling for Rs.

The firm is planning to issue rights shares in the ratio of one right share for every existing four shares: a What is the theoretical value of a right if the subscription price is Rs.

The equity stock of Parakram Limited is selling for Rs. The firm is planning to issue rights shares in the ratio of one right share for every existing three shares: a What is the theoretical value of a right if the subscription price is Rs. Advaith Corporation has a net operating income of Rs. Advaith employs Rs. The equity capitalisation rate applicable to Advaith is 14 percent. What is the market value of Advaith under the net income method?

Assume there is no tax. Solution: Net operating income Rs. Kanishk Limited has a net operating income of Rs. Kanishk employs Rs. The equity capitalisation rate applicable to Kanishk is 13 percent.

What is the market value of Kanishk under the net income method? The following information is available for two firms, Anil Corporation and Sunil Corporation. Anil Sunil Net operating income Rs. In answering the above questions assume that the net income approach applies and there are no taxes. The management of Janata Company, subscribing to the net operating income approach, believes that its cost of debt and overall cost of capital will remain at 7 percent and 14 percent, respectively.

Assume that there are no taxes. The management of Lavanya Corporation, subscribing to the net operating income approach, believes that its cost of debt and overall cost of capital will remain at 10 percent and 16 percent, respectively.

The optimal ratio is 0. The following information is available on Vidyut Corporation. Solution: The value of Vidyut Corporation. The following information is available on Magnificent Corporation. Solution: 1-tc 1 — tpc The profit and loss account for the year 1 the year that has just ended and the balance sheet at the end of year 1 for Red Rock Limited are as follows.

Note that the pre-tax cost of debt is 8 percent. Alternative B : Issue of Rs. Solution: EBIT — 16 1 — 0. The profit and loss account for year 1 the year which has just ended and the balance sheet at the end of year 1 for Glendale are as follows: Balance Sheet Profit and Loss Account Sources of Funds Rs.

Solution: EBIT — 10 1 — 0. Preference shares carry a dividend of Rs. The earnings per share is Rs. The firm is planning to raise Rs. Two financing alternatives are being considered: i issuing 4,, equity shares for Rs.

Solution: a Currently No. It requires Rs. It is considering two alternatives: Alternative 1 : Issue of 3 million equity shares of Rs. Alternative 2 : Issue of 2 million equity shares of Rs. Keerthinath Corporation presently has two million outstanding equity shares Rs. It needs Rs. AMSF AMSE AMSD AMSC AMSB AMSA AMS Technical changes have been made that resolve issues that were found in the previous revision.

Resolution requirements for recording instruments have been updated to be able to demonstrate that the equipment meets the accuracy tolerances of Table 7 when using the percentage instead of the numerical tolerance.

AMSF is a complete rewrite. Therefore, there are no change bars to indicate specific changes from the last revision. NOTE: Some requirements are precise conversions while others are approximate conversions see 8.