Answer the following Questions
Question 1.
An investor is thinking of investing in a recurring deposit scheme that offers an interest rate of 12% per annum. The investment that he is planning is for the higher education of his son who is just two years now. In case the investor decides to invest Rs 20,000 every year, what will be the total money available to him when his son reaches the age of 20 years?
Question 2.
Calculate the Future value of Ordinary Annuity:
a. Mr. Vinod is depositing Rs.2,000 in a recurring bank deposit which pays 9% p.a. compounded interest. How much amount Mr. Vinod will get at the end of 5th year?
b. Find the future value of ordinary annuity Rs. 4,000 each six months for 15 years at 5% p.a. a compunded semi-annually.
Write a short note on the following:
Question 3. Loan syndication
Question 4. Lock Box System
Question 5. Discuss the various techniques of inventory management for efficient working capital management.
Question 6. Discuss the importance of dividend decisions. What is MM theory of dividend decision?
Question 7. What do you mean by venture capital? Discuss the common methods of venture capital financing.
CASE STUDY
Question 8. TC Shipping Ltd has decided to purchase a machine to augment the company's installed capacity to meet the growing demand for its products. There are three machines under consideration of the management. The relevant details including estimated yearly expenditure and sales are given below: All Sales are on cash. Corporate income tax rate is 40%. Interest on Capital may be assumed to be 10%.
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Particulars
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Machine 1
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Machine 2
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Machine 3
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Initial Investment Required
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3,00000
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3,00000
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3,00000
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Estimated Annual Sales
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5,00,000
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4,00,000
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4,50,000
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Cost of Production(Estimated):
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Direct Materials
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40,000
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50,000
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48,000
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Direct Labor
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50,000
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30,000
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36,000
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Factory overheads
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60,000
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50,000
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58,000
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Administration costs
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20,000
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50,000
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'15,000
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Selling and Distribution Costs
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10,000
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10,000
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10,000
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The economics life of Machine 1 is 2 years, while it is 3 years for the other two. The scrap values are Rs.40, 000, Rs. 25,000, and Rs.30, 000 respectively. Suggest the most profitable investment based on various project appraisal techniques.
Question 9. The following particulars relate to ABC Ltd. at the end of 2008:
(i) Rs. 500,000 equity shares of Rs. 10 each. Present dividend per share is Rs. 15; Market price Rs. 100 per share. Growth rate in dividend 5 per cent.
(ii) Retained earnings - Rs. 200,000.
(iii) 8% Rs. 500,000 preference shares of Rs. 50 each issued at a discount of 5%.
(iv) Debentures of Rs. 1,000 each, repayable at par in 2012, were issued as follows:
Type A: 200 A debenture of 13 per cent issued at a premium of 10 per cent.
Type B: 100 B debentures of 10 per cent issued at a premium of 10 per cent.
(v) 11% term-loan of Rs. 500,000. ABC Ltd. received the entire proceeds of the loan.
Assuming that ABC Ltd. is in a 50 per cent tax bracket and that it uses book values as weights, calculate the overall cost of capital of ABC Ltd.