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.