NMIMS Global Access
School for Continuing Education (NGA-SCE)
Course: Corporate Finance

Internal Assignment Applicable for December 2020 Examination

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

If you were told that each project’s cost of capital was 12%, which project should be
selected using the NPV criteria? What is each project’s IRR? What is the regular
payback period for these two projects? What is the profitability index for each project
if the cost of capital is 12%? (10 Marks)

2. Assume that your father is now 50 years old and plans to retire after 10 years from
now. He is expected to live for another 25 years after retirement. He wants a fixed
retirement income of Rs. 5,00,000 per annum. His retirement income will begin the
day he retires, 10 years from today, and then he will get 24 additional payments
annually. Your father has current savings of Rs. 10,00,000 and he expects to earn a
return on his savings @ 10% p.a., annually compounding. How much (to the nearest of
rupee) must your father save during each of next 10 years to meet his retirement goal?
(10 Marks)

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

Debt 25%
Preference Shares 15%
Equity shares 60%
Total 100%

Applicable tax rate for CPIL is 25%. and investors expect earnings and dividends to
grow at a constant rate of 9% in the future. Risk free rate of return is 6%, average equity

share has expected rate of return of 15%. CPIL’s beta is 1.50. Following terms would
apply to new securities being issued as follows:
1. New preference can be issued at a face value of Rs. 100 per share, dividend and cost of
issuance will be Rs. 8 per share and Rs. 4 per share respectively.
2. Debt will bear an interest rate of 10%.

Calculate
a. Component cost of debt, preference shares and equity shares assuming that CPIL does
not issue any additional equity shares. (5 Marks)

b. WACC.