What is adjusted NPV if the adjustment is made only for the issue cost of external equity

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Project Management

Total Marks: 80
Note : All Questions are Compulsory
Each Question Carries Equal Marks

CASE STUDY : 1
Amalgamated Enterprises is a broadly diversified company with presence in a variety of sectors such as cement, textiles and industrial specialized chemicals. After a through review of various capital projects undertaken in the last 5 years, the executive committee of Amalgamated Enterprises felt that the quality of a market and demand analysis of most of the projects was somewhat patchy. As a marketing analyst, you have been invited by Shekhar Dutt, the managing director of Amalgamated Enterprises to do a seminar on market and demand analysis for the business heads of the company. He wants to address by you following issues.

Q1) How should one evaluate secondary information?
Q2) Discuss the steps in a sample survey?
Q3) What is your opinion about sample survey?
Q4) Briefly describe the various methods of demand forecasting?

CASE STUDY : 2
The cash flow associated with three projects P, Q, & R are given below. Net Cash Flow Year P Q R 0 (2000) (2000) (2000) 1 1400 500 5002 600 1100 500 3 400 900 1600

Q1) What is NPV explain in detail?
Q2) How is modified NPV calculated?
Q3) Calculate the net present value of each project at discount rate of 0 percent?
Q4) Calculate the NPV of each project at discount rate of 5 percent, 10 percent, 15 percent m 25 percent and 30 percent?

CASE STUDY : 3
Microelectronics Company Corporation is currently at its target debt equity ratio of 0.5 : 1. It is considering a proposal to expand capacity which is expected to cost Rs 500 million and generate after tax cash flows of Rs 130 million per year for the next eight years. The tax rate for the firm is 30 per cent. Mahesh, the CFO of the company, has considered two financing options.

1) issue of equity stock. The required return on the company’s new equity is 20 per cent and the issuance cost will be 12 per cent.
2) issue of debentures at a yield of 13 percent. The issuance cost will be 3 percent.

Q1) What are the three steps involved in calculating a firm’s WACC?
Q2) What is WACC for Micro-electronics?
Q3) What is micro-electronics weighted average flotation cost?
Q4) What is NPV of the proposed after taking into account the floatation costs?

CASE STUDY : 4
N Electricals Ltd. is evaluating a capital project requiring an outlay of Rs 12 million. It is expected to generate an annual cash inflow of Rs 3 million for 6 years. The opportunity cost of Capital is 20 per cent. N Electricals can raise a term loan of Rs 8 million for the project. It will carry an interest rate of 18 p.c. and will be repayable in 8 equal annual installments, the first installment falling due at the end of the second year. The balance amount required for the project can be raised by issuing external equity. The issue cost is expected to be 12 per cent. The tax rate for the company is 30 per cent.

Q1) What is base-case of NPV?
Q2) What is adjusted cost of capital?
Q3) What is adjusted NPV if the adjustment is made only for the issue cost of external equity?
Q4) What is the present value of the tax shield on debt finance?



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Project Report and Thesis contact
ARAVIND – 09901366442 – 09902787224



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