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NMIMS – Corporate Finance

Corporate Finance

1. With the following information, calculate the Degree of Operating, Financial, and Total Leverage.

Sharma & Co. had 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. (10 Marks)

2. Parag is evaluating 3 options for investment of his surplus money of Rs. 5,00,000/- for 5 years.
3. Invest it in an FD which gives him a return of 8% compounded quarterly.
4. 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 to 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

(10 Marks)

3. a) 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 a discounting rate of 11%

Also calculate the real discounting rate, when inflation is at 6% (5 Marks)

1. 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:
2. At Par
3. At a Discount of 8%
4. At a premium of 12%
Make your inferences about the YTM for each option. (5 Marks)

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