Corporate Finance NMIMS Apr 19

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Q1. Miss Ninna is planning to open a boutique at link road. Her financial advisor says that its essential to take care and manage well the working capital, as it ensures smooth running of the operating cycle of business. However, there are various factors which affects the working capital management. If you being the financial advisor of Miss Ninna, discuss those factors in detail. (10 Marks)

Q2. Alpha limited is investing $500 million in a new project. The present values of the future after tax cash flows resulting from the project is $750 million. The company has 100 million shares outstanding, having market price of $45 per share. Assuming, the project being independent of other expectations about the company, Calculate the effect of – „h The new project on the value of the company on the company¡¦s stock. (10 Marks)

Q3. The data related to two companies A and B, are as under-

  A B
Sales 500000 1000000
Variable cost 20% of sales 25% of sales
Fixed Cost 1.2 lacs 2 lacs
Interest 0.5 lacs 0.75lacs
  1. Determine the operating and financial leverage (5 Marks)
  2. Determine the combined leverage for them. Also, comment on the relative risk position of the companies (5 Marks)
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