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

Internal Assignment Applicable for April 2021 Examination

1. The capital structure of ABC Pvt. Ltd is as follows:
Equity share capital (each share of Rs. 10) = Rs. 10,00,000
Debentures with a coupon rate of 9.5% = Rs. 8,00,000
Reserves and surplus = Rs. 7, 00,000

Revenue from the business activities for the company is Rs. 1.50 crores. Its variable
cost is 8% of the revenue, fixed operating cost is Rs. 48 lakhs and the company pays
income tax at a rate of 25%.
a. Calculate financial leverage, operating leverage and combined leverage for the
company.
b. Determine the likely level of EBIT for EPS of (i) Rs. 20, (ii) Rs. 30, and (iii) Rs. 45
(10 Marks)

2. The equity shares of a publicly traded company are priced at Rs. 450 with P/E (Price to
Earnings) ratio of 15. The announces a dividend of Rs. 9 per shares. The shareholders
of the company expect the dividend to grow at a rate of 6% every year, and the cost of
equity for the company is 15%. According to the dividend relevance approach
suggested by Walter and Gordon, what would be the impact of dividend announcement
on the market price of the shares of the company if required rate of return for investors
is (i) 12%, (ii) 15% and (iii) 18%. (10 Marks)

3. A manufacturing company forecast that it is likely to sell 6,00,000 units for the year
2021. The processing cost of an order is Rs. 150 and the carrying cost per unit of
inventory is Rs. 12. The lead time of an order is 8 days.
a. What would be the economic order quantity (EOQ) and re-order point assuming 300
days in a year. (5 Marks)

b. The company implements business process reengineering which results in to reduction
of 20% in cost of an order, 10% in carrying cost per unit of inventory and 25% in lead
time of an order. What would be the new EOQ and re-order point.