1(a). What is meant by Asset Based Valuation Model?

1(b). Define Arbitrage Pricing Theory (APT).

1(d). The average rate of dividend paid by Veer Co. Ltd. for the last five year is 21 Percent. The earnings of the company have recorded a growth rate of 3 percent per annum. The market value of the equity share is estimated to be Rs. 105. Find out the cost of equity share capital.

2(b). A project cost Rs. 96,000 and is expected to generate cash inflows of Rs. 48,000, Rs. 42,000 and Rs. 36,000 at the end of each year for next 3 years. Calculate project's IRR.

4(a). A project will cost Rs. 4,00,000. Its stream of earnings before depreciation, interest and taxes (EBDIT) during first year through five years is expected to be Rs. 1,00,000, Rs. 1,20,000, Rs. 1,40,000, Rs. 1,60,000 and Rs. 2,00,000. Assume a 30% tax rate and depreciation on straight-line basis. Calculate the project's accounting rate of return.

4(b). XYZ Ltd. issued 2,000 10% Preference Share of Rs. 200 each. Cost of issue is Rs. 3 per share. Calculate cost of preference capital if these shares are issued: (1) at par (2) at premium and (3) at 2% discount. Also calculate cost of preference shares after tax in the above situations, if corporate dividend tax is 10%.

1(e). A company has estimated that for a new product its selling price is Rs. 15 per unit, variable cost is Rs. 10 per unit and fixed cost is Rs. 10,000. Calculate the operating leverage for sales volume of 5,000 units.

5(a). A company needs Rs. 10,00,000 for the installation of a new factory. The new factory is expected to yield an annual earnings before interest and taxes (EBIT) of Rs. 1,60,000. The current market price per share is Rs. 25 and is expected to drop to Rs. 20 if the funds are borrowed in excess of Rs. 5,00,000. It is considering the possibility of issuing equity shares and raising debt of Rs. 1,00,000 or Rs. 4,00,000 or Rs. 6,00,000. Funds can be borrowed at the interest rates indicated below:
Up to Rs. 1,00,000 at 8%
Over Rs. 1,00,000 to Rs. 5,00,000 at 12% and
Over Rs. 5,00,000 at 18%
Assume a tax rate of 50%. Determine the earning per share (EPS) and suggest the best alternative.

5(b). A company has sales of Rs. 1 Lakh. The variable costs are 40% of the sales while the fixed operating costs amount to Rs. 30,000. The amount of interest on long-term debt is Rs. 10,000. You are required to calculate the Operating, Financial and Composite leverages and illustrate its impact if sales increased by 5%.

2(d). Details regarding three companies are given below:

Particulars	U Ltd.	V Ltd.	W Ltd.
Internal Rate of Return (r)	15%	10%	8%
Market Capitalisation Rate (Ke)	10%	10%	10%
Earnings Per Share (E)	Rs. 10	Rs. 10	Rs. 10

By using Walter's Model, you are required to: (I) Calculate the value of an equity share of each of these three companies when dividend payout ratio is (i) 20%, (ii) 50%, (iii) 0% and (iv) 100%. (II) Comment on the result drawn.

6(a). The following information is available in respect of the rate of return on investment, the cost of capital and earnings per share of Ved Ltd.
Rate of Return on Investment (r) = (i) 15%; (ii) 12%; and (iii) 10%
Cost of Capital (Ke) = 12%
Earnings per Share (E) = Rs. 10
Determine the value of its share by using Gordon's Model assuming the following:

Option	D/p Ratio (1-b)	Retention Ratio (b)
(I)	100	0
(II)	80	20
(III)	40	60

1(c). Define Profitability Index. How is it calculated?

1(d). A project requires an outlay of Rs. 50,000 and yields annual cash inflow of Rs. 12,500 for 7 years. Calculate the payback period for the project. And also tell whether this project will be accepted or not and why?

2(a) ii. Triple 'V' Ltd. issued 1,000 10% Preference Shares of Rs. 100 each. Cost of issue is Rs. 2 per share. Calculate cost of preference capital if these shares are issued: (I). at par (II). at 5% premium and (III). at 2% discount. Also calculate cost of preference shares after tax in the above situations, if corporate dividend tax is 10%.

2(b) ii. A project costs Rs. 16,000 and is expected to generate cash inflows of Rs. 8,000, Rs. 7,000 and Rs. 6,000 at the end of each year for next 3 years. Calculate IRR by Trial and Error Method.

4(a). The average rate of dividend paid by 'V' Ltd. for the last five years is 21%. The earnings of the company have recorded a growth rate of 3% per annum. The market value of the equity shares is estimated to be Rs. 105. Find out:
(I). The cost of equity share capital.
(II). Determine the estimated market price of the equity shares if the anticipated growth rate of the firm rises to 5%.
(III). If the company's cost of capital is 20% and anticipated growth rate is 5%, determine the market price of the share, assuming the same dividend per share.

4(b). A project will cost Rs. 40,000. Its stream of earnings before depreciation, interest and taxes (EBDIT) during first year through five years is expected to be Rs. 10,000, Rs. 12,000, Rs. 14,000, Rs. 16,000 and Rs. 20,000. Assume a 50% tax rate and depreciation on straight-line basis. Calculate project's ARR.

1(f). A company has estimated that for a new product its selling price is Rs. 14 per unit, variable cost is Rs. 9 per unit and fixed cost is Rs. 10,000. Calculate the Operating Leverage for sales volumes of 3,000 units.

2(a) i. The capital structure of "VEER" Ltd. is as follows: 10% Debentures Rs. 8,00,000; 4,000 6% Pref. Shares of Rs. 100 each Rs. 4,00,000; 8,000 Equity Shares of Rs. 100 each Rs. 8,00,000. EBIT is Rs. 3,00,000. Expansion programme requires Rs. 10,00,000 (Expected EBIT increase Rs. 1,00,000). Tax 50%. Alternatives: (I) Issue 14% Debentures at par, (II) Issue 6% Preference Shares at par, (III) Issue Equity Shares at par. Examine alternatives and suggest best financing.

5(b). "BHARAT" Ltd. has sales of Rs. 25,00,000. The fixed costs are Rs. 4,00,000 and variable costs are Rs. 17,00,000. The company uses a debt of Rs. 10,00,000 @ 12% p.a. From the available data, calculate the operating, financial and combined leverages.

2(b) i. The earnings per share of a company are Rs. 16. The market value of discount (Capitalisation rate) to the company is 12.5%. Retained earnings can be employed to yield a return of 10%. The company is considering a payout of 25%, 50% and 75%. Which of these would maximize the wealth of shareholders?

6(b). Radhe Engineering Co. Ltd. currently has outstanding 1,00,000 shares selling at Rs. 100 each. Declaring dividend of Rs. 5 per share. Ke = 10%. (I). Price of share at end of year if (i) dividend is not declared and (ii) dividend is declared. (II). Explain as per M-M approach wealth of shareholders is equal whether dividend is paid or not.

3(a). The following table gives dividend and share price data for 'VEER' manufacturing Company:

Year	Dividend Per Share	Closing Share Price
2008	2.50	12.25
2009	2.50	14.20
2010	2.50	17.50
2011	3.00	16.75
2012	3.00	18.45
2013	3.25	22.25
2014	3.50	23.50
2015	3.50	27.75
2016	3.50	25.50
2017	3.75	27.95
2018	3.75	31.30

You are required to calculate: (i) The annual rates of return, (ii) The expected (average) rate of return, (iii) The variance, and (iv) The standard deviation of returns.

1(d). A project requires an outlay of Rs. 1,00,000 and yields annual cash inflow of Rs. 25,000 for 7 years. Calculate the payback period for the given project.

4(a). A project costs Rs. 15,500 and is expected to generate cash inflows of Rs. 8000, Rs. 7000 and Rs. 6000 at the end of each year for next 3 years. Find out the project's IRR by trial and error method.

4(b). A company issued 10,000 ten-years 8% debentures of Rs. 100 each at 4% discount. Under the terms of debenture trust, these debentures are to be redeemed after 10 years at 5% premium. The cost of issue is 2%. Assuming tax rate at 50%, Calculate the cost of debt capital before and after tax.

1(f). A company has estimated that for a new product its selling price is Rs. 15 per unit, variable cost is Rs. 10 per unit and fixed cost is Rs. 10,000. Calculate the operating leverage for sales volume of 5000 units.

5(a). The present capitalisation of a company is as follows:
4,000, 5% Debentures of Rs. 100 each: Rs. 4,00,000
2,000, 8% Redeemable Preference Shares of Rs. 100 each: Rs. 2,00,000
40,000 Equity Shares of Rs. 10 each: Rs. 4,00,000
Total: Rs. 10,00,000

The present earnings (EBIT) are 10% on invested capital. The company needs Rs. 2,00,000 for a special plant and it is estimated that additional investment will produce 10% earnings every year. The Company has asked for your advice as to whether requisite amount be obtained in the form of 5% Debentures or 8% Redeemable Preference Shares or Equity Shares. Assume 50% tax rate.

5(b). A Company has sales of Rs. 1 lakh. The variable costs are 40% of the sales while the fixed operating costs amount to Rs. 30,000. The amount of interest on long-term debt is Rs. 10,000. You are required to Calculate the operating, financial and composite leverages and illustrate its impact if sales increased by 5%.

6(b). XYZ Company currently has outstanding 2,00,000 shares selling at Rs. 200 each. The firm is thinking of declaring a dividend of Rs. 10 per share at the end of the current year. The Capitalizations rate of this type of firm is 10%.
(A) What will be the price of the share at the end of the year if (i) A dividend is not declared and (ii) A dividend is declared.
(B) Explain that as per M.M. approach the wealth of share holders is equal whether dividend is paid or not.

2(e). A firm has the following capital structure and after-tax costs for the different sources of funds used:

Source of Funds	Amount (Rs.)	After-tax cost (%)
Debt	15,00,000	5
Preference Shares	12,00,000	10
Equity Shares	18,00,000	12
Retained Earnings	15,00,000	11
Total	60,00,000	-

You are required to compute the weighted average cost of capital (WACC).

3(b). Define holding-period return. How is it calculated? (Note: Iska numerical formula pucha gaya hai).

5(b). ABC Ltd., needs Rs. 30,00,000 for the installation of a new factory. The new factory expects to yield annual earnings before interest and tax (EBIT) of Rs. 5,00,000. In choosing a financial plan, ABC Ltd., has an objective of maximizing earnings per share (EPS). The company proposes to issuing ordinary shares and raising debt of Rs. 3,00,000 and Rs. 10,00,000 or Rs. 15,00,000. The current market price per share is Rs. 250 and is expected to drop to Rs. 200 if the funds are borrowed in excess of Rs. 12,00,000. Funds can be raised at the following rates:

• up to Rs. 3,00,000 @ 8%
• over Rs. 3,00,000 to Rs. 15,00,000 @ 10%
• over Rs. 15,00,000 @ 15%

Assuming a tax rate of 50% advise the company.

7(b). Kumar company has sales of Rs. 25,00,000. Variable cost of Rs. 12,50,000 and fixed cost of Rs. 50,000 and debt of Rs. 12,50,000 at 8% rate of interest. Calculate combined leverage.

6(b). The earnings per share of a company are Rs. 80 and the rate of capitalization applicable to the company is 12.5%. The company has before it an option of adopting a payment ratio of 25% (or) 50% (or) 75%. Using Walter's formula of dividend payout, compute the market value of the company's share if the productivity of retained earnings (i) 12% (ii) 8% (iii) 5%.

4(b). From the following balance sheet of A Company Ltd. you are required to prepare a schedule of changes in working capital and statement of flow of funds:

Liabilities	2004 (Rs.)	2005 (Rs.)	Assets	2004 (Rs.)	2005 (Rs.)
Share Capital	1,00,000	1,10,000	Land and Building	60,000	60,000
Profit and Loss a/c	20,000	23,000	Plant and Machinery	35,000	45,000
Loans	-	10,000	Stock	20,000	25,000
Creditors	15,000	18,000	Debtors	18,000	28,000
Bills Payable	5,000	4,000	Bills receivable	2,000	1,000
			Cash	5,000	6,000
Total	1,40,000	1,65,000	Total	1,40,000	1,65,000

1(c). Calculate the expected rate of return for security from the following information:
$R_f = 10\%$, $R_m = 18\%$, $\beta_i = 1.35$.

1(g). A firm's sales, variable costs and fixed cost amount to Rs. 75,00,000, Rs. 42,00,000 and Rs. 6,00,0000 respectively. It has borrowed Rs. 45,00,000 at 9% and its equity capital totals Rs. 55,00,000. What is the firm's ROI?

2(c). An investor holds two equity shares X and Y in equal proportion with the following risk and return characteristics:
$E(R_x) = 24\%$; $E(R_y) = 19\%$, $\sigma_x = 28\%$, $\sigma_y = 23\%$
The returns of these securities have a positive correlation of 0.6. You are required to calculate the portfolio return and risk. Further, suppose the investor wants to reduce the portfolio risk to 15%. What should be the correlation coefficient to bring the portfolio risk to the desired level?

2(d). A project will cost Rs. 40,000. Its stream of earnings before depreciation, interest and taxes during first year through five years is expected to be Rs. 10,000, Rs. 12,000, Rs. 14,000, Rs. 16,000 and Rs. 20,000. Assume a 50% tax rate and depreciation on straight-line basis. Calculate the project's ARR.

2(e). A company has estimated that for a new product its selling price is Rs. 14 per unit, variable cost is Rs. 9 per unit and fixed cost is Rs. 10,000. Calculate the operating leverage for sales volume of 3000 units and 4000 units. Also comment on the calculation of operating leverage.

5. M/s Deepika Ltd. has a share capital of Rs. 10,00,000 divided into 1,00,000 equity shares of Rs. 10 each. It has a major expansion programme requiring an investment of another Rs. 5,00,000. The management is considering alternatives for raising this amount:
(i) Issue of 50,000 equity shares of Rs. 10 each.
(ii) Issue of 50,000, 12% preference shares of Rs. 10 each.
(iii) Issue of 10% debentures of Rs. 5,00,000.
The company's present EBIT are Rs. 4,00,000 p.a. Calculate the effect of each of the above modes of financing on the EPS, and suggest the best alternative if:
(i) EBIT continues to be the same even after expansion,
(ii) EBIT increases by Rs. 1,00,000.
Assume tax rate at 50%.

2(g). From the following particulars of XYZA Ltd. You are required to determine the working capital requirement:
(i) Average amount locked up in stocks: Raw materials (20k), WIP (4k), Finished goods (30k).
(ii) Credit period to customers: Home market (2 weeks, 2.6L), Foreign Market (6 weeks, 6.24L).
(iii) Lag in payment: For purchase (4 weeks, 1.56L), For wages (2 weeks, 2.08L), For management Exp. (1 week, 78k).
You may add 10% to allow for contingencies.