NAME PRANAV RAMCHANDANI

ROLL NO. 23/33561

COURSE B.COM (HONS)
SECTION A

ANSWER1
ANSWER 2
ANSWER3
ANSWER4

ANSWER 5
EQUITY SHARE CAPITAL 4000000.00
PREFERENCE SHARE CAPITAL 3000000.00
DEBENTURE CAPITAL 2000000.00
PREFERENCE INTEREST RATE 10.00%
DEBENTURE INTEREST RATE 12.00%
NET SALES 16000000.00
EBIT% AS ON SALES 10.00%
CORPORATE TAX RATE 40.00%
FIXED COST 5000000.00

INCOME STATEMENT

NET SALES 16000000.00

VARIABLE COST 9400000.00
CONTRIBUTIONS 6600000.00
FIXED COST 5000000.00
EBIT 1600000.00
INTEREST 240000.00
EBT 1360000.00
TAX 544000.00
EAT 816000.00
PREFERENCE DIVIDEND 300000.00
NET PROFIT 516000.00

NO. OF EQUITY SHARES 400000.00

EPS=NP/NO. OF EQUITY SHARES 1.29

OPERATING LEVERAGE
(CONTRIBUTIONS/EBIT) 4.13

FINANCIAL LEVERAGE
EBIT/EBT-(PD(1-T)) 1.86

COMBINED LEVERAGE 7.67

(OL*FL)

%CHANGE IN EPS
(FL*%CHANGE IN EBIT) 18.60%

DEBENTURE BOOK VALUE 1000000.00

PREFERENCE SHARE BOOK VALUE 500000.00
DEBENTURES BOOK VALUE 2000000.00
RETAINED EARNINGS 500000.00
Debenture Market Price (per unit) 110.00
Preference Shares Market Price 120.00
Equity share market price 22.00
Debenture Coupon Rate 8.00%
Debenture floating cost 4.00%
Preference Dividend Rate 10.00%
Preference floating cost 5.00%
Equity floating cost Rs. 2
Equity dividend expected Rs. 2
Equity dividend growth rate 5.00%
corporate tax rate 30.00%

Kd = I(1-t)+(RV-NP)/N / ((RV+NP)/2)

I 8
t 0.3
RV 100
NP 96
NP 20

5.8
98
Kd 0.0591836734693878
D1 2
P0 22
g 0.05
NP 20

Ke 0.15

CAPITAL MARKET VALUE WEIGHT

DEBENTURES 1100000 0.180327868852459
PREFERENCE SHARES 600000 0.0983606557377049
EQUITY SHARES 3520000 0.577049180327869
RETAINED EARNINGS 880000 0.144262295081967
6100000 1
YEAR PROJECT X PROJECT Y

0 100000 100000
1 10000 50000
2 20000 40000
3 30000 20000
4 45000 10000
5 60000 10000

YEAR PROJECT X PROJECT Y

0 -100000.00 -100000.00
1 10000.00 50000.00
2 20000.00 40000.00
3 30000.00 20000.00
4 45000.00 10000.00
5 60000.00 10000.00

NPV OF PROJECT X 16150.1636127686

IRR OF PROJECT X 14.71%

PROFITABILTY INDEX 1.16

SO PROJECT X IS BETTER
INITIAL INVESTMENT 250000
MACHINE LIFE(IN YEARS) 5.00
SALVAGE VALUE 0
TAX RATE 40%
COST OF CAPITAL 10%
DEPRECIATION METHOD SLM

YEAR EAT
1 6000
2 12000
3 24000
4 30000
5 60000

DEPRECIATION 50000

YEAR EAT CF=EAT+DEP

1 6000 56000
2 12000 62000
3 24000 74000
4 30000 80000
5 60000 110000

PBP 3.725
ARR 21.12
NPV 30688.48
IRR 14%

FIRM OUTPUT(units) FIXED COST(RS.)

A 60000.00 7000.00
B 15000.00 14000.00
C 100000.00 1500.00

INCOME STATEMENT

PARTICULARS FIRM A
 SALES 36000.00
VARIABLE COST 12000.00
CONTRIBUTION 24000.00
FIXED COST 7000.00
EBIT 17000.00
INTEREST 4000.00
EBT 13000.00

DOL=C/EBIT 1.41
DFL=EBIT/EBT 1.31
DCL=DOL*DFL 1.85

INTERPRETATION

FIRM A: has a DCL of 1.85,indicating that a 1% increase in sales will result in a 1.85% increase in Earnings per Share (EPS).This fi

FIRM B: Has a DCL of 1.71, so a 1% increase in sales leads to a 1.71% increase in EPS. Firm B has a slightly lower combined leve

Firm C: Has a DCL of 1.23, indicating minimal leverage. Since Firm C has no financial leverage, the combined leverage reflects o
FM LAB PROJECT
Kp= (PD+(RV-NP)/N) / ((RV+NP)/2)

PD 10
RV 100
NP 95
N 15

10.3333333333333
97.5
Kp 0.105982905982906
Kr 0.140909090909091

SPECIFIC COST WACC MARKET VALUE OF EQUITY

0.0591 0.0106573770491803 EQUITY
0.1059 0.010416393442623 RETAINED EARNINGS
0.15 0.0865573770491803
0.1409 0.0203265573770492
0.127957704918033
NET PRESENT VALUE

NPV OF PROJECT Y
IRR OF PROJECT Y

PROFITABILITY INDEX
 OUTFLOW -250000
INFLOW 56000
62000
74000
80000
110000

CCF
56000
118000
192000
272000
382000

AVERAGE PROFIT 26400

AVERAGE INVESTMENT 125000

VARIABLE COST(RS.) INTEREST ON BORROWED FUNDS (Rs.) SELLING PRICE PER UNIT (Rs.)
0.20 4000.00 0.60
1.50 8000.00 5.00
0.02 0.00 0.10

FIRM B FIRM C
 75000.00 10000.00
22500.00 2000.00
52500.00 8000.00
14000.00 1500.00
38500.00 6500.00
8000.00 0.00
30500.00 6500.00

1.36 1.23
1.26 1.00
1.72 1.23

increase in Earnings per Share (EPS).This firm has has moderate operating and financial leverage

. Firm B has a slightly lower combined leverage than Firm A.

leverage, the combined leverage reflects only the operating leverage. This suggests lower risk and lower sensitivity to sales changes.
OJECT
4400000
3520000
880000
 10%

6578.04049648866
14%

1.06578040496489
sitivity to sales changes.