Finance Answers

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.

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%

Org 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 -400 -575

1 95 150

2 110 200

3 118 250

4 125 275

5 140 230

6 150 180 

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%?

The management found suitable office to buy with a purchase cost of 

GHC1,000,000.00; however, 2 years ago, the company lost GHC150,000.00 on similar project which failed. 

The company wants to use needs refurbishment before occupation at a cost of GHC250, 000.00 and there will 

be annual rates and utility costs payable from year 1 of GHC70,000.00. The company will have static annual 

employee costs of GHC135,000.00 together with other identified fixed annual overheads of GHC100,000.00

per annum.

Ann Marketing Ltd expects to generate sales from 2 new customers each week in year 1 at an average invoice 

value of GHC5,000.00. The company’s business plan suggests that, the annual total revenue of year 1 will 

increase at 10% per annum from year 2 to 5 without any additional expenditure requirement.

The company has a cost of capital of 8% and a Return of Capital Employed (ROCE) of 15%. Assuming that, 

all cash movement will align with profitability.

Mc grath ltd issues a bond with a $1000 face value,10 years to maturity and annual coupon of $80.the yield to maturity is 8 % ,what price would the bond sell for? 

Nancy perkins borrow $2000 at 5% and she is going to make annual payments of $734.42.How long before nancy off the loan.

1. Org 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 -400 -575

1 95 150

2 110 200

3 118 250

4 125 275

5 140 230

6 150 180

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%?

Pattison family considers the opportunity to finance the purchase of their first $500 thousand worth single-family house in Santa Rosa, CA. To qualify for a 30-year fixed-rate mortgage, the down payment should be 10% of the purchase price. To accumulate money for the down payment, Mr. Pattison plans to invest $35,000 in the stock portfolio that earns 7.65% per annum. Assume that Mr. Pattison reinvests annual gains at the same interest rate as the initial investment. How much money will Mr. Pattison accumulate with this investment within five years? Is the initial investment amount sufficient to accumulate in five years the required down payment under the above mortgage? Round your answers to the nearest dollar. Show your work

Which is the credit card features would be best for customers who often forget to send in their payments on time

a) Gender bias is one of the ills of our society and thus impacts our workplace too.

Most progressive businesses are moving towards gender neutral policies for talent acquisition & talent management. Explain how are businesses doing it?

b) How has the study of Business Ethics as a subject helped you make ethical

decisions & choices to navigate your professional life better.