GET SOLVED ASSIGNMENTS
YOU MAY CALL US ON - 7506193173
WHATSAPP NUMBER- 9967480770
Strategic Financial Management
1. A company is evaluating
a proposal to replace a machine costing Rs. 800000 and having a written down
value of Rs. 400000. The machine has a remaining economic life of 5 years after
which it will have no salvage value. However, if sold today, it will fetch an
amount equal to its book value. The new machine is expected to cost Rs. 1400000.
It is also expected to have a life of 5 years with a scrap value of Rs. 400000.
Owing to its technological superiority, the new machine is expected to
contribute additional annual benefit (before depreciation and tax) of Rs.
400000. The company’s opportunity cost of capital is 10%. The tax rate
applicable to the firm is 30%. The company follows Straight Line Method of
Depreciation for its machines. Should the company replace the old machine with
the new one? (10 Marks)
2. The country’s leading
oil company is planning to set up a Greenfield project to carry out exploration
work in a recently identified prospective site. Keeping the high risks associated
with this project in mind, funding the project is turning out to be tricky
issue for the company. You, being a subject specialist, have been approached by
the company to assist it in project funding. Identify the possible sources of
fund for this Greenfield project. Also, guide the company through the various
stages involved in the project financing. (10 Marks)
3. A) A company is
considering an investment of Rs. 500 million in a project. Expected earnings
before interest and tax (EBIT) are Rs. 150 million per year. The operational risks
associated with the project are fairly low, and EBIT is expected to remain
steady during the project tenure. The company can raise equity, 14% preference
shares, 10% debentures, or any combination thereof. Face value of equity shares
is Rs. 100. Tax rate is 30%. The company is exploring the following four
financing options:
Issue equity capital at
par value
Raise 50% by equity
share capital and 50% by preference capital
Raise 50% by equity
share capital, 25% by preference capital, and 25% by debenture
Raise 25% by equity
share capital, 25% by preference capital, and 50% by debenture
Identify the best
financing option for the company.
3. B) Which of the above
four options will be the best, if the expected EBIT is only Rs. 60 million per
year, everything else remaining the same?
GET SOLVED ASSIGNMENTS
YOU MAY CALL US ON - 7506193173
WHATSAPP NUMBER- 9967480770
No comments:
Post a Comment