Corporate Finance NMIMS Solution April 2024
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1. With the following information, calculate Degree of Operating, Financial and Total Leverage.
Sharma & Co. had a sales of Rs. 25, 00,000 in their jewellery making business. That year they sold 15,000 units. The cost of production was as follows:
Raw Material 450000
Labour 750000
Factory Overheads
Fixed 120000
Variable 85000
Further the company incurred Selling and Distribution expenses of Rs. 90,000, towards advertising and other marketing overheads. The company also had borrowed Rs. 12,00,000 @ 8% interest rate.
2. Parag is evaluating 3 options for investment of his surplus money of Rs. 5,00,000/- for a period of 5 years.
i. Invest it in a FD which gives him a return of 8% compounded quarterly.
ii. Invest in a Corporate Deposit at a rate of 7% compounded monthly.
iii. Invest it in a Business Proposal which gives him the following returns.
Considering the risk involved, the discounting factor is considered @10%.
As his finance advisor which option would you suggest him. Provide reasons.
Year CF
1 1,50,000
2 3,20,000
3 3,45,000
4 2,75,000
5 2,15,000
3a. A project is started with an initial investment of Rs. 6,00,000. The cash flows generated over the next 4 years are Rs. 1,00,000 ; Rs. 2,50,000 ; Rs. 4,56,000 ; Rs. 5,74,000.
Calculate the NPV of the project at discounting rate of 11%
Also calculate the real discounting rate, when inflation is at 6%
b. M/s Tridev Limited issues bonds of Rs. 25,000/- at 10% interest rate for 10 years. Calculate its YTM is the bonds are issued:
a. At Par
b. At Discount of 8%
c. At premium of 12%
Make your inferences about the YTM for each option.
