problem 1)a) The share capital of a company is Rs.8, 00, 000 with shares of face value Rs.10. It has a debt capital of Rs.5, 00, 000 at 12% interest rate. The sales of the company are 2, 50, 000 units per annum at a selling price of Rs.5 per unit and the variable cost per unit is Rs.3. The fixed cost is Rs.1, 00, 000 and tax rate is 50%. If the sales increase by 20% find out the percentage increase in EPS, degree of operating and financial leverages at the two output levels. Comment on the behavior of leverages when the production is increased by 20%.

b) Describe the following terms with appropriate exs.

• Non- operating surplus

• Intangible fixed assets

• Sundry creditors

• Fixed liabilities

• Prepaid expenses

problem 2)a) A company purchased a machine for Rs. 5,,00,000 having a zero salvage value and a discounted payback period of 7.5 years. The firm follows straight line method of depreciation at a rate of 10%. If the cash flows are evenly distributed and the tax rate is 40%, what is the annual PBT on the machine? Also find out the IRR and NBCR of the machine if the cost of capital is 12%.

b) Find out the cost of capital of a company that is employing equity capital and term loans in the ratio 3:2 and paying a constant dividend of 12.5% per year and an interest of 14% per year. The tax rate is 40%.