1. (a) In case of bonus shares, what is the effect on total net worth of a company show with example?(b) Describe the two main reasons for share split.

2. (a) You require Rs 10,000 at the beginning of each year from 10th to 14thyear. How much you should invest at the end of each year from 1stto 5thyear if interest rate is 10% p.a.?(b) A Rs 20,00,000 plant expansion is to be financed as follows; 15% down payment and remainder is borrowed at 9% interest. The loan is to be repaid in 8 equal installments starting 4 years from now. Find the amount of each equal annual installment.

3. You plan to retire 33 years from now. You expectthat you will live 27 years after retiring. You want to have enough money upon reaching retirement age to withdraw $180,000 from the account at thebeginning of each year you expect to live, and yet still have $2,500,000 left in the account at the time ofyour expected death (60 years from now). You planto accumulate the retirement fund by making equalannual deposits at the end of each year for the next 33 years. You expect that you will be able to earn 12% per year on your deposits. However, you only expect to earn 6% per year on your investment after youretire since you will choose to place the money in less risky investments. What equal annual deposits mustyou make each year to reach your retirement goal.

4. Suppose the Asian Institute library is interested in purchasing a new information system that will give users access to a number of online databases for five years. The benefits of the system are said to be Rs 100,000 per annum (cost savings to library and benefits to users). The system costs Rs 300,000 to purchase and setup. The maintenance cost will be Rs 20,000 each year. After five years the system will be inadequate for Institute’s needs and will be dismantled and sold for Rs 20,000. Assume the discount rate is 7%. Calculate NPV.

5. A proforma cost sheet of a company provides the following particulars:

Amount Per Unit (Rs)Raw Material 80Direct Labour 30

Overheads 60Total cost 170

Profit 30Selling Price 200

The following particulars are available:

(a) Raw Material in stock, on an average one month; materials in process, on average half a month; finished goods in stock, on an average one month.

(b) Credit allowed by suppliers is one month; credit allowed to debtors is two months; lag in payment of wages is one and a half weeks; lag in payment of overhead expenses in one month; one fourth of the output is sold against cash; cash in hand and at bank is expected to be Rs 25,000.

You are required to prepare a statement showing working capital needed to finance a level of activity of 1,04,000 units of production. You may assume that production is carried on evenly throughout the year, and wages and overheads accrue similarly.

6. From the following Financial data of Company A and Company B. Prepare their Income Statements

Company A Company BVariable cost 56,000 60% of salesFixed cost 20,000 -Interest expense 12,000 9,000Financial leverage 5:1 -Operating leverage - 4:1Income tax rate 30% 30%Sales - 1,05,000

7. From the following details available, prepare balance sheet of Dimpy & Co. as on 31stMarch, 2006(a) Net worth turnover ratio = 2(b) Fixed assets turnover ratio = 4(c) Gross profit turnover ratio = 20%(d) Creditors deferral period = 73 days(e) Debtors collection period = 2 months(f) Inventory Turnover Ratio = 6Reserves and surplus amount is Rs. 10,000. Closing stock was Rs. 5,000 in excess of opening stock. Gross profit was Rs. 60,000.

8. Data-Pan corporation wishes to raise Rs 10,00,000 to finance acquisition of new assets. It is considering to borrow Rs 5,00,000 at 14% and issue equity share at Rs 20 per share for the balance. The following are the estimates of the earning from the assets with their probability distribution. Tax rate is 30%.

EBIT (Rs) Probabilities80,000 0.10

1,20,000 0.201,60,000 0.402,00,000 0.203,20,000 0.10

You are required to calculate expected EPS and its standard deviation under two plans

9. From the following information of Cherry & Cherry Company Ltd., prepare the balance sheetand compute the return on capital employed (ROCE), Return on Total Assets (ROTA) and Returnon Equity (ROE):

Current Assets 1,00,000Investment in Treasury bonds 1,00,000Fixed assets 5,00,000Sales 5,00,000Cost of goods sold 3,00,00010% Debentures 1,00,000Income from treasury bond 10,000Interest on debentures 10,00010% preference share capital 1,00,000Equity share capital 2,00,000Capital reserve 1,00,000Provision for Tax @30% of net profits

10. A company currently has the following capital structure:

Source of funding Amount of funding Expected rate of returnRetained earnings 100 m 11%Loans 35 m 3.4%Bonds 150 m 8.75%Preference share 60 m 7%Ordinary Share 110 m 10.5%

Assuming a corporate tax rate of 25%: a)What is the current WACC of the company? b)If the company expects the total capital to remain the same, but the debt to equity ratio increase of 10% (via an increase in the debt and an across the board decrease in equity financing) and the cost of debt to increase 50% in the next 2 years, what will the WACC be after these changes?