Strategic Financial Management June 2018 Assignment

03 Apr

Strategic Financial Management

1. From the following details supplied by Amaya Plastics ltd. you are required to:

a. Calculate the Net Present Value

b. Calculate the Discounted Payback Period

For each Capital Expenditure proposal given below:

Details Proposal A Proposal B
Initial Cost Rs. 20,00,000 Rs. 15,00,000
Expected life 10 years 8 years
Cash flows before tax after depreciation Rs. 3,00,000 each for first four years Rs. 2,00,000 for next 6 years Rs. 2,00,000 each for first five years Rs. 3,00,000 for last three years
Estimated scrap value Rs. 50,000 Rs. 1,00,000

The discounting factor is 12% and tax rate 30%.

2. Kailash Ltd. Earns Operating Profit (EBIT) of Rs.1,80,00,000 at existing capital structure. You are required to calculate financial leverage and EPS with the help of following information

Particulars Amount in Rs
13.5% Debentures ( FV 100) 4,00,00,000
15% Cumulative Preference Shares( FV 100) 1,00,00,000
Equity Share Capital ( FV 10) 3,00,00,000
8,00,00,000

Tax rate 35%

3. A) Naysha Ltd. has the following capital structure as on 31st March, 2017

10% debentures (before tax) (Rs) 300000
9% preference shares (Rs) 200000
Equity shares of Rs.100 each 500000
Total 1000000

The equity shares of the company are quoted at Rs.102 and the company is expected to declare a dividend of Rs.9 per share for the year. Tax rate is 40% required.

Calculate the cost of capital.

3. B. Discuss the cheapest form of raising long term finance with reference to Question 3 (A) and state the reasons for the same.

MNP Ltd has recorded earnings before interest and tax (EBIT) of Rs. 50 Crs for FY17

16 Sep

Strategic Financial Management

Q.1. Mr. Das is a CFO of ABC Ltd. The Company proposes to establish overseas subsidiaries in European countries to expand its business. However before any final decision, Mr. Das has to make detailed report on following points

(a) Tax implication exchange gain & loss and capital investment

(b) Incentive available for export business

(c) Other important tax related matters Prepare brief note on the above three (3) points.

Q.2. Action Investor LLP, is a Private Equity (PE) firm with 46% stake in OPS Ltd. Along with the stake, the PE firm also has a board seat and veto power on major financial decision of the Company. The performance of OPS Ltd is far below expectation over past two years & the PE firm believes that there is need to look at various restructuring steps. What are different types of restructuring that PE firm can propose in board meeting?

Q.3 a) SFL Ltd. is considering launching of new product to supplement its existing range of product. As per the projection done by the finance team, there will be initial capital investment of Rs. 70 lakhs in current year. After that the first year will need capital infusion of Rs. 1 Crs. Below are the after tax cash inflow projection:

Year 2: Rs. 25 lakhs

Year 3: Rs. 30 lakhs

Year 4: Rs. 35 lakhs

From 5th year onwards the cash inflow will be Rs. 40 lakhs through out till end of 10th year.

The Company expects the new product shelf life to be of 10 years.

Assuming 15% discount rate what will be the NPV of this new project . Based on your NPV calculation, whether launching of this new product line is acceptable or not?

Q.3. b) MNP Ltd has recorded earnings before interest and tax (EBIT) of Rs. 50 Crs for FY17. The Company has outstanding debt of Rs. 10 Crs and pays 10% interest on its debt. Applicable tax rate for the Company is 30%. What is the valuation of MNP Ltd if the expected return on its equity shares is at 18%?

SFL Ltd. is considering launching of new product to supplement its existing range of product

16 Sep

Strategic Financial Management

Q.1. Mr. Das is a CFO of ABC Ltd. The Company proposes to establish overseas subsidiaries in European countries to expand its business. However before any final decision, Mr. Das has to make detailed report on following points

(a) Tax implication exchange gain & loss and capital investment

(b) Incentive available for export business

(c) Other important tax related matters Prepare brief note on the above three (3) points.

Q.2. Action Investor LLP, is a Private Equity (PE) firm with 46% stake in OPS Ltd. Along with the stake, the PE firm also has a board seat and veto power on major financial decision of the Company. The performance of OPS Ltd is far below expectation over past two years & the PE firm believes that there is need to look at various restructuring steps. What are different types of restructuring that PE firm can propose in board meeting?

Q.3 a) SFL Ltd. is considering launching of new product to supplement its existing range of product. As per the projection done by the finance team, there will be initial capital investment of Rs. 70 lakhs in current year. After that the first year will need capital infusion of Rs. 1 Crs. Below are the after tax cash inflow projection:

Year 2: Rs. 25 lakhs

Year 3: Rs. 30 lakhs

Year 4: Rs. 35 lakhs

From 5th year onwards the cash inflow will be Rs. 40 lakhs through out till end of 10th year.

The Company expects the new product shelf life to be of 10 years.

Assuming 15% discount rate what will be the NPV of this new project . Based on your NPV calculation, whether launching of this new product line is acceptable or not?

Q.3. b) MNP Ltd has recorded earnings before interest and tax (EBIT) of Rs. 50 Crs for FY17. The Company has outstanding debt of Rs. 10 Crs and pays 10% interest on its debt. Applicable tax rate for the Company is 30%. What is the valuation of MNP Ltd if the expected return on its equity shares is at 18%?

Action Investor LLP, is a Private Equity (PE) firm with 46% stake in OPS Ltd

16 Sep

Strategic Financial Management

Q.1. Mr. Das is a CFO of ABC Ltd. The Company proposes to establish overseas subsidiaries in European countries to expand its business. However before any final decision, Mr. Das has to make detailed report on following points

(a) Tax implication exchange gain & loss and capital investment

(b) Incentive available for export business

(c) Other important tax related matters Prepare brief note on the above three (3) points.

Q.2. Action Investor LLP, is a Private Equity (PE) firm with 46% stake in OPS Ltd. Along with the stake, the PE firm also has a board seat and veto power on major financial decision of the Company. The performance of OPS Ltd is far below expectation over past two years & the PE firm believes that there is need to look at various restructuring steps. What are different types of restructuring that PE firm can propose in board meeting?

Q.3 a) SFL Ltd. is considering launching of new product to supplement its existing range of product. As per the projection done by the finance team, there will be initial capital investment of Rs. 70 lakhs in current year. After that the first year will need capital infusion of Rs. 1 Crs. Below are the after tax cash inflow projection:

Year 2: Rs. 25 lakhs

Year 3: Rs. 30 lakhs

Year 4: Rs. 35 lakhs

From 5th year onwards the cash inflow will be Rs. 40 lakhs through out till end of 10th year.

The Company expects the new product shelf life to be of 10 years.

Assuming 15% discount rate what will be the NPV of this new project . Based on your NPV calculation, whether launching of this new product line is acceptable or not?

Q.3. b) MNP Ltd has recorded earnings before interest and tax (EBIT) of Rs. 50 Crs for FY17. The Company has outstanding debt of Rs. 10 Crs and pays 10% interest on its debt. Applicable tax rate for the Company is 30%. What is the valuation of MNP Ltd if the expected return on its equity shares is at 18%?

Incentive available for export business & Other important tax related matters

16 Sep

Strategic Financial Management

Q.1. Mr. Das is a CFO of ABC Ltd. The Company proposes to establish overseas subsidiaries in European countries to expand its business. However before any final decision, Mr. Das has to make detailed report on following points

(a) Tax implication exchange gain & loss and capital investment

(b) Incentive available for export business

(c) Other important tax related matters Prepare brief note on the above three (3) points.

Q.2. Action Investor LLP, is a Private Equity (PE) firm with 46% stake in OPS Ltd. Along with the stake, the PE firm also has a board seat and veto power on major financial decision of the Company. The performance of OPS Ltd is far below expectation over past two years & the PE firm believes that there is need to look at various restructuring steps. What are different types of restructuring that PE firm can propose in board meeting?

Q.3 a) SFL Ltd. is considering launching of new product to supplement its existing range of product. As per the projection done by the finance team, there will be initial capital investment of Rs. 70 lakhs in current year. After that the first year will need capital infusion of Rs. 1 Crs. Below are the after tax cash inflow projection:

Year 2: Rs. 25 lakhs

Year 3: Rs. 30 lakhs

Year 4: Rs. 35 lakhs

From 5th year onwards the cash inflow will be Rs. 40 lakhs through out till end of 10th year.

The Company expects the new product shelf life to be of 10 years.

Assuming 15% discount rate what will be the NPV of this new project . Based on your NPV calculation, whether launching of this new product line is acceptable or not?

Q.3. b) MNP Ltd has recorded earnings before interest and tax (EBIT) of Rs. 50 Crs for FY17. The Company has outstanding debt of Rs. 10 Crs and pays 10% interest on its debt. Applicable tax rate for the Company is 30%. What is the valuation of MNP Ltd if the expected return on its equity shares is at 18%?

Tax implication exchange gain & loss and capital investment

16 Sep

Strategic Financial Management

Q.1. Mr. Das is a CFO of ABC Ltd. The Company proposes to establish overseas subsidiaries in European countries to expand its business. However before any final decision, Mr. Das has to make detailed report on following points

(a) Tax implication exchange gain & loss and capital investment

(b) Incentive available for export business

(c) Other important tax related matters Prepare brief note on the above three (3) points.

Q.2. Action Investor LLP, is a Private Equity (PE) firm with 46% stake in OPS Ltd. Along with the stake, the PE firm also has a board seat and veto power on major financial decision of the Company. The performance of OPS Ltd is far below expectation over past two years & the PE firm believes that there is need to look at various restructuring steps. What are different types of restructuring that PE firm can propose in board meeting?

Q.3 a) SFL Ltd. is considering launching of new product to supplement its existing range of product. As per the projection done by the finance team, there will be initial capital investment of Rs. 70 lakhs in current year. After that the first year will need capital infusion of Rs. 1 Crs. Below are the after tax cash inflow projection:

Year 2: Rs. 25 lakhs

Year 3: Rs. 30 lakhs

Year 4: Rs. 35 lakhs

From 5th year onwards the cash inflow will be Rs. 40 lakhs through out till end of 10th year.

The Company expects the new product shelf life to be of 10 years.

Assuming 15% discount rate what will be the NPV of this new project . Based on your NPV calculation, whether launching of this new product line is acceptable or not?

Q.3. b) MNP Ltd has recorded earnings before interest and tax (EBIT) of Rs. 50 Crs for FY17. The Company has outstanding debt of Rs. 10 Crs and pays 10% interest on its debt. Applicable tax rate for the Company is 30%. What is the valuation of MNP Ltd if the expected return on its equity shares is at 18%?

Mr. Das is a CFO of ABC Ltd

16 Sep

Strategic Financial Management

Q.1. Mr. Das is a CFO of ABC Ltd. The Company proposes to establish overseas subsidiaries in European countries to expand its business. However before any final decision, Mr. Das has to make detailed report on following points

(a) Tax implication exchange gain & loss and capital investment

(b) Incentive available for export business

(c) Other important tax related matters Prepare brief note on the above three (3) points.

Q.2. Action Investor LLP, is a Private Equity (PE) firm with 46% stake in OPS Ltd. Along with the stake, the PE firm also has a board seat and veto power on major financial decision of the Company. The performance of OPS Ltd is far below expectation over past two years & the PE firm believes that there is need to look at various restructuring steps. What are different types of restructuring that PE firm can propose in board meeting?

Q.3 a) SFL Ltd. is considering launching of new product to supplement its existing range of product. As per the projection done by the finance team, there will be initial capital investment of Rs. 70 lakhs in current year. After that the first year will need capital infusion of Rs. 1 Crs. Below are the after tax cash inflow projection:

Year 2: Rs. 25 lakhs

Year 3: Rs. 30 lakhs

Year 4: Rs. 35 lakhs

From 5th year onwards the cash inflow will be Rs. 40 lakhs through out till end of 10th year.

The Company expects the new product shelf life to be of 10 years.

Assuming 15% discount rate what will be the NPV of this new project . Based on your NPV calculation, whether launching of this new product line is acceptable or not?

Q.3. b) MNP Ltd has recorded earnings before interest and tax (EBIT) of Rs. 50 Crs for FY17. The Company has outstanding debt of Rs. 10 Crs and pays 10% interest on its debt. Applicable tax rate for the Company is 30%. What is the valuation of MNP Ltd if the expected return on its equity shares is at 18%?

Strategic Financial Management

16 Sep

Strategic Financial Management

Q.1. Mr. Das is a CFO of ABC Ltd. The Company proposes to establish overseas subsidiaries in European countries to expand its business. However before any final decision, Mr. Das has to make detailed report on following points

(a) Tax implication exchange gain & loss and capital investment

(b) Incentive available for export business

(c) Other important tax related matters Prepare brief note on the above three (3) points.

Q.2. Action Investor LLP, is a Private Equity (PE) firm with 46% stake in OPS Ltd. Along with the stake, the PE firm also has a board seat and veto power on major financial decision of the Company. The performance of OPS Ltd is far below expectation over past two years & the PE firm believes that there is need to look at various restructuring steps. What are different types of restructuring that PE firm can propose in board meeting?

Q.3 a) SFL Ltd. is considering launching of new product to supplement its existing range of product. As per the projection done by the finance team, there will be initial capital investment of Rs. 70 lakhs in current year. After that the first year will need capital infusion of Rs. 1 Crs. Below are the after tax cash inflow projection:

Year 2: Rs. 25 lakhs

Year 3: Rs. 30 lakhs

Year 4: Rs. 35 lakhs

From 5th year onwards the cash inflow will be Rs. 40 lakhs through out till end of 10th year.

The Company expects the new product shelf life to be of 10 years.

Assuming 15% discount rate what will be the NPV of this new project . Based on your NPV calculation, whether launching of this new product line is acceptable or not?

Q.3. b) MNP Ltd has recorded earnings before interest and tax (EBIT) of Rs. 50 Crs for FY17. The Company has outstanding debt of Rs. 10 Crs and pays 10% interest on its debt. Applicable tax rate for the Company is 30%. What is the valuation of MNP Ltd if the expected return on its equity shares is at 18%?