Q.1: Is Equity Capital Free of cost? Substantiate your
statement.
Q # 2
What is the rate of return for a company if the β is 1.25, risk free rate of return is 8% and
the market rate of return is 14%. Use CAPM model
Q # 3
b) Sundaram Transports has the following capital structure.
Equity capital Rs.10 par value 250K
12% preference share capital Rs.100 each 100 K
Retained earnings 150K
12% Debentures (Rs.100 each) 350K
14% Term loan 150K
Total 1000K
The market price per equity is Rs 54. The company is expected to declare a dividend per
share of Rs.2 per share and there will be a growth of 10% in the dividends for the next 5
years. The preference shares are redeemable at a premium of Rs.5 per share after 8 years.
The current market price of preference share is Rs.92. Debenture redemption will take
place after 7 years at a discount of 2% and the current market price is Rs.91 per
debenture. The corporate tax rate is 40%. Calculate WACC.
Q # 4
The effective cost of debt is less than the actual interest payment made by the firm. Do
you agree with this statement? If yes/no substantiate your views?
Q # 5
Why capital budgeting decision very crucial for finance
managers?
Q # 6 A road project require an initial investment of Rs.10,00,000. It is expected to
generate the following cash flow in the form of toll tax recovery.
Year Cash Inflows
1 450,000
2 4,25,000
3 3,00,000
4 3,50,000
What is the IRR of the project?
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