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Brief Answer Questions:
[6x1=6]Write the meaning of business finance.
Differentiate between a primary market and a secondary market.
What is meant by free cash flows?
Write the differentiate between ordinary annuity and annuity due.
Give the meaning of bond.
What is the weighted average cost of capital?
Short Answer Questions:
[6x3=18]What are financial securities? Describe some financial instruments.
The real risk-free rate is 3%, inflation is expected to be 2 % this year and 4% during the next 2 years. Assume that the maturity risk premium is zero.
What is the yield on two-year Treasury securities?
Chandra Brothers recently reported earnings before interest, taxes, depreciation and amortization (EBITDA) OF Rs 7.5 million and net income of Rs. 1.8 million. It had Rs 2.0 million of interest expense, and its corporate tax rate was 40%. What was its charge for depreciation and amortization?
Compute the yield to maturity of the following bonds:
a. A zero coupon bond that is currently priced at Rs 400 and matures with a face value of Rs 1,000 in 8 years.
b. A perpetual bound that pays 15% annual coupon rate on par value of Rs 1,000. The bond is selling at Rs 900.
The common stock of Sagarmatha Company paid Rs 8 in dividends last year. Dividends are expected to grow at a 10% annual rate for an indefinite number of years.
a. If Sagarmatha's current market price is Rs 176, what is the stock's expected rate of return?
b. If your required rate of return is 14%, what is the value of stock today?
c. Should you invest your money?
The Chaurikhola Credit Card Company offers you a credit card with an Annual percentage Rate (APR) of 19.5%. if interest compounds daily, what is the effective annual rate of interest on this credit card? If the credit card company used monthly compounding, what would be the effective rate of interest?
Long Answer Questions:
[4x6=24]What is the statement of cash flow? Briefly explain the four sections shown in the statement of cash flows ?
Consider the following balance sheet of Sitalpati Company.
| Assets | Amount | Liabilities and Equity | Amount |
|---|---|---|---|
| Cash | Rs 50,000 | Account payable | Rs 50,000 |
| Accounts receivable | 100,000 | Accrued expenses | 50,000 |
| Inventory | 400,000 | Deferred taxes | 50,000 |
| Furniture | 100,000 | Debenture | 50,000 |
| Equipment | 100,000 | Long term loan | 150,000 |
| Land and building | 250,000 | Common stock | 500,000 |
| Retained earnings | 150,000 | ||
| Total assets | 1,000,000 | Total liabilities and equity | 1,000,000 |
Calculate:
a. Current ratio.
b. Quick ratio.
c. Debt ratio.
d. Debt equity ratio.
e. Equity Multiplier.
f. Long term debt to total assets ratio.
To complete your last year in business school and then go through law school, you will need Rs 10,000 per year for 4 years, starting next year. Your mama offers to put you through, school, and he will deposit in a bank paying 7% interest, compounded annually, a sum of money that is sufficient to provide the 4 payments of Rs 10,000 each. His deposit will be made today.
a. How large must the deposit be?
b. How much will be in the account immediately after you make the first withdrawal?
The common stocks of the companies X and Y have the expected returns and standard deviations given below; the expected correlation between the two stocks is -0.35.
| Common stock | Expected return | Standard deviation |
|---|---|---|
| X | 10% | 5% |
| Y | 6 | 4 |
Compute the risk and return for a portfolio comprised of 60 percent invested in the stock of company X and 40 percent invested in the stock c.f. company Y.
(a) Garudnahani Company issues a zero-coupon bond having a 10-years maturity and currently selling at Rs 500. The par value of bond is Rs 1,000. Corporate tax rate is 40%. Calculate the after tax cost of debt.
(b) Bhedetar Company's next expected dividend is Rs 3.18; its growth rate is 6%; and its common stock now sells for Rs 36. New stock (external equity) can be sold to net Rs 32.40 per share.
a. What is Bhedetar's cost of retained earnings?
b. What Bhedetar's percentage flotation cost?
c. What Bhedetar's cost of new common stock?
Comprehensive Answer Questions:
[1x12=12](a) What is the balance sheet, and what information does it provide?
(b) Last year Horleri Company had Rs 5 million in operating income (EBIT). The company had net depreciation expense of Rs. 1 million and interest expense of Rs 1 million; its corporate tax was 40%. The company has Rs 14 million in current assets and Rs 4 million in non-interest-bearing current liabilities' it has Rs 15 million in net plant and equipment. It estimates that is has an after-tax cost of capital of 10%. Assume that Holeri's only noncash item was depreciation.
i. What was the company's net income for the year?
ii. What was the company's net cash flow?
iii. What was the company's net operating profit after taxes (NOPAT)?
iv. What was the company's operating cash flow?
v. If operating capital in the previous year was Rs 24 million, what was the company's free cash flow (FCF) for the year?
vi. What was the company's Economic Value Added (EVA)?