1.

(a) In case of bonus shares, what is the effect on total net worth of a
company show with example?
(b) Describe the two main reasons for share split.
2. (a) You require Rs 10,000 at the beginning of each year from 10 th to
14thyear. How much you should invest at the end of each year from
1stto 5thyear if interest rate is 10% p.a.?
(b) A Rs 20,00,000 plant expansion is to be financed as follows; 15%
down payment and remainder is borrowed at 9% interest. The loan is to be
repaid in 8 equal installments starting 4 years from now. Find the
amount of each equal annual installment.
3. You plan to retire 33 years from now. You expectthat you will live 27 years
after retiring. You want to have enough money upon reaching retirement age
to withdraw $180,000 from the account at thebeginning of each year you
expect to live, and yet still have $2,500,000 left in the account at the time
ofyour expected death (60 years from now). You planto accumulate the
retirement fund by making equalannual deposits at the end of each year for
the next 33 years. You expect that you will be able to earn 12% per year on
your deposits. However, you only expect to earn 6% per year on your
investment after youretire since you will choose to place the money in less
risky investments. What equal annual deposits mustyou make each year to
reach your retirement goal.
4. Suppose the Asian Institute library is interested in purchasing a new
information system that will give users access to a number of online
databases for five years. The benefits of the system are said to be Rs
100,000 per annum (cost savings to library and benefits to users). The
system costs Rs 300,000 to purchase and setup. The maintenance cost will
be Rs 20,000 each year. After five years the system will be inadequate for
Institutes needs and will be dismantled and sold for Rs 20,000. Assume the
discount rate is 7%. Calculate NPV.
5. A proforma cost sheet of a company provides the following

particulars:
Amount Per Unit (Rs)
Raw Material
80
Direct Labour
30
Overheads
60
Total cost
170
Profit
30
Selling Price
200
The following particulars are available:

(a) Raw Material in stock, on an average one month;

materials in process, on average half a month; finished
goods in stock, on an average one month.
(b) Credit allowed by suppliers is one month; credit allowed
to debtors is two months; lag in payment of wages is one
and a half weeks; lag in payment of overhead expenses in
one month; one fourth of the output is sold against cash;
cash in hand and at bank is expected to be Rs 25,000.
You are required to prepare a statement showing working
capital needed to finance a level of activity of 1,04,000 units
of production. You may assume that production is carried on
evenly throughout the year, and wages and overheads
accrue similarly.
6. From the following Financial data of Company A and Company B. Prepare
their Income Statements
Variable cost
Fixed cost
Interest expense
Financial leverage
Operating leverage
Income tax rate
Sales

Company A
56,000
20,000
12,000
5:1
30%
-

Company B
60% of sales
9,000
4:1
30%
1,05,000

7. From the following details available, prepare balance sheet of Dimpy & Co. as
on 31stMarch, 2006
(a) Net worth turnover ratio = 2
(b) Fixed assets turnover ratio = 4
(c) Gross profit turnover ratio = 20%
(d) Creditors deferral period = 73 days
(e) Debtors collection period = 2 months
(f) Inventory Turnover Ratio = 6
Reserves and surplus amount is Rs. 10,000. Closing stock was Rs. 5,000 in
excess of opening stock. Gross profit was Rs. 60,000.
8. Data-Pan corporation wishes to raise Rs 10,00,000 to finance

acquisition of new assets. It is considering to borrow Rs

5,00,000 at 14% and issue equity share at Rs 20 per share
for the balance. The following are the estimates of the

earning from the assets with their probability distribution.

Tax rate is 30%.
EBIT (Rs)
Probabilities
80,000
0.10
1,20,000
0.20
1,60,000
0.40
2,00,000
0.20
3,20,000
0.10
You are required to calculate expected EPS and its standard
deviation under two plans
9. From the following information of Cherry & Cherry Company Ltd., prepare the
balance sheetand compute the return on capital employed (ROCE), Return on
Total Assets (ROTA) and Returnon Equity (ROE):
Current Assets
Investment in Treasury bonds
Fixed assets
Sales
Cost of goods sold
10% Debentures
Income from treasury bond
Interest on debentures
10% preference share capital
Equity share capital
Capital reserve
Provision for Tax @30% of net profits

1,00,000
1,00,000
5,00,000
5,00,000
3,00,000
1,00,000
10,000
10,000
1,00,000
2,00,000
1,00,000

10.A company currently has the following capital structure:

Source of funding
Retained earnings
Loans
Bonds
Preference share
Ordinary Share

Amount of funding
100 m
35 m
150 m
60 m
110 m

Expected rate of return

11%
3.4%
8.75%
7%
10.5%

Assuming a corporate tax rate of 25%:

a)What is the current WACC of the company?
b)If the company expects the total capital to remain the same, but the debt
to equity ratio increase of 10% (via an increase in the debt and an across the

board decrease in equity financing) and the cost of debt to increase 50% in
the next 2 years, what will the WACC be after these changes?