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Calculate WACC?
Given corporate tax 35%.
Debt MV 20m (RRR6%)
Preferred stock MV 10m (RRR8)
Common stock MV 50m (RRR12)
a. When the Treasury of the United States issues bonds and sells them to the public to finance the deficit, the money supply remains unchanged because every dollar of money taken in by the Treasury goes right back into circulation through government spending. This is not true when the Fed sells bonds to the public.
Cummins India Ltd has the following capital structure, which it considers optimal:
Debt 25%
Preference Shares 10%
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.
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. 10 per share and Rs. 2 per share respectively.
2. Debt will bear an interest rate of 9%.
Calculate
a. component cost of debt, preference shares and equity shares assuming that the company
does not issue any additional equity shares.
b. WACC.
Assume that your father is now 55 years old and plans to retire after 5 years from now.
He is expected to live for another 15 years after retirement. He wants a fixed retirement
income of Rs. 1,00,000 per annum. His retirement income will begin the day he retires,
5 years from today, and then he will get 14 additional payments annually. 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 today to meet his retirement goal?
Org Pvt. Ltd. is considering two mutually exclusive capital investments. The project’s
Expected cash flows
year
Project A
Project B
0
-400
-575
1
95
150
2
110
200
3
118
250
4
125
275
5
140
230
6
150
180
expected net cash flows are as follows:
a. If you were told that each project’s cost of capital was 10%, which project should be
selected using the NPV criteria?
b. What is each project’s IRR?
c. What is the regular payback period for these two projects?
d. What is the profitability index for each project if the cost of capital is 12%?
Flare Stock will pay the dividend of $2.4 this year. Its dividend yield is 10%. At what price is the stock selling?
Assume that your father is now 55 years old and plans to retire after 5 years from now.
He is expected to live for another 15 years after retirement. He wants a fixed retirement
income of Rs. 1,00,000 per annum. His retirement income will begin the day he retires,
5 years from today, and then he will get 14 additional payments annually. 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 today to meet his retirement goal?
Explain different types of money market instruments. In each of the below cases,which money market instruments would you recommend and why?
a) A mutual fund manager has INR 450 million of cash, which he needs to park for a period of less than 180 days, where he will move this to equity
b) An oil refining company wishes to borrow INR 1500million for a period of 90 days to fund its settlement of invoices
Calculate the price on its issue date of 100000 face value 90 day commercial paper issued by GE capital Canada if the prevailing market rate of return is 1.932%
Background about public sector wage bill in South Africa
