25 Sep


1. MCARTECH Pvt. Ltd. is considering two mutually exclusive capital investments. The project’s expected net cash flows are as follows:

Expected Cash Flows
Year Project A Project B
0 -500 -875
1 100 150
2 110 200
3 120 250
4 175 375
5 240 530
6 300 680

a. If you were told that each project’s cost of capital was 12%, which project should be selected using the NPV criteria?

c. What is the profitability index for each project if the cost of capital is 12%?

c. What is the regular payback period for these two projects?

2. Assume that you plan to take a housing loan with a tenor of 20 year. The loan has to be repaid in equal monthly installments. Considering that the loan amount is Rs. 50 lakhs and the interest rate on loan is 9% p.a., what would be the equated monthly installment (EMI)?

3. LT India Ltd has the following capital structure, which it considers optimal:

Debt 35%
Equity shares 65%
Total 100%

Applicable tax rate for the company is 25%. Risk free rate of return is 6%, average equity market investment has expected rate of return of 12%. The company’s beta is 1.10. Debt will bear an interest rate of 9% p.a.


a. Component cost of debt and equity shares assuming that the company does not issue

any additional equity shares.

b. Weighted Average Cost of Capital (WACC).


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