Finance Answers

1. Mrs Alis is an intelligent business woman. She makes her investments after a very thoughtful process. In January 2018 , her manager has shown her some projects with the following details 

Option A

Investment into a towel business that initially cost $200,000 and then will generate cash inflow of $24000 per year for the next 10 years

Option B

Investment into a detergent business that initially cost $190,000 and then will generate cash inflow of $20,000 for each of next 12 years. 

The rate of return associated with both the investments is 12%. 

a. Calculate net present value (NPV) and internal rate of return (IRR) of both the investments. 

b. Comment on which investment Mrs Alis should pick on the basis NPV and IRR.

LOANED 150 000 TO A FARMER

Jonathan’s Enterprises purchases $4,562,500 in goods per year from its sole supplier on terms of 2/15, net 50. If the firm chooses to pay on time but does not take the discount, what is the effective annual percentage cost of its non-free trade credit? (Assume a 365-day year.)

We are all concerned with the serious health impacts of the escalating pollution problem in a country like India where regulation oversight is comparatively lax and penalties & punishments too few and far? Identify and select any one pollution reducing/mitigating initiative practiced and embedded in its business by a listed company that impresses you. Explain this initiative along with the short term & long term positive impact of the same on the environment & people. (refer to Sustainability Report and/or Business Responsibility Report of the company)

A particular government department of Maharashtra wanted to survey “challenges faced by Companies during the Covid-19 pandemic”. A team of three belongs to that government Department, has downloaded data of all listed companies from OGD platform. Now, they strongly believe that their target group of the current study is;

‘Active companies’. As a part of writing a basic introduction, they wanted to summarize the data they have received from OGD platform by keeping only ‘Active Companies’.

a. Simply Identify the measurement type of each column that exists in the data file and mention it along with the variable name. 

b. Summarize the data (prepare frequency table) only for the “PRINCIPAL_BUSINESS_ACTIVITY_AS_PER_CIN “variable and write basic interpretation along with an appropriate graph.

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. 

Provide a brief explanation on the background of the public sector wage bill in South Africa

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?