M.Sc Corporate Finance II Dec 2023

Description

Corporate Finance – II

December 2023 Examination

 

 

 

1) The TDSL firm has 5 lakh shares in outstanding/circulation. The company is now selling at Rs. 200 per share, with an EPS of 12 and a P/E multiple of 16.67.

Show the effects of a 10% stock bonus on TDSL EPS, stock price, PE Ratio, and total number of shares outstanding, as well as the effects of a stock dividend on total cost, cost  per share, and total number of shares held for an investor who owns 1000 shares of TDSL at a cost of 120 each. (10 marks)

 

Ans 1.

Introduction 

Bonus stocks are additional shares issued to contemporary shareholders based on how many stocks they own at no more incredible value. The general public needs clarification on bonus troubles with stock splits. That is because, just like stock splits, in a bonus issue, the company stocks increase. But, in an advantage issue, additional shares are offered to existing shareholders at zero cost in percentage to the claims they own in the company. In contrast, in the inventory split, the face price of the share is reduced.

So, bonus stocks increase the company’s share capital, whereas, in a stock split, the share capital remains the same, but in each instance, the range of shares rises, and the share charge

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2)   HDFC stock was trading at Rs. 700 per share at the end of 2023, while analysts expected its intrinsic value to be Rs. 850. HDFC’s needed return on equity was projected to be 7% per year.

Estimate the expected one-year return on the stock if the market price is expected to converge to intrinsic value in one year and the expected two-year return on the stock if the market price is expected to converge to intrinsic value in two years.   (10 marks)

Ans 2.

Introduction

Intrinsic value can be defined as a philosophical concept wherein the value of an item or Endeavour is derived in and of itself—or, in non-specialist’s phrases, independently of other factors. Financial analysts build models to determine what they consider to be the intrinsic value of an organization’s inventory of doors of what its perceived (MP) market price can be on any specific day.

The discrepancy between an analyst’s envisioned intrinsic cost and the market price will become a degree of investing chance. Those who recollect such a model’s reasonably good intrinsic value estimations and who might invest based on the ones estimations cost investors.

 

 

3) a)  DETERMINE the cost of equity capital for TECH Mahindra Ltd., which has a risk-free rate of return of 15%. The beta of the firm is 1.60, and the return on the market portfolio is 22%. (5 Marks)

Ans 3a.

Introduction

The equity fee is the return an organization wishes to decide if funding aligns with capital go-back desires. Businesses use it as a capital budgeting threshold (CPT) for the needed return rate. A company’s cost of equity depicts the compensation that the market needs (MD) in exchange for owning the capita asset and bearing the ownership uncertainty. The cost of

 

1. b) DIVIS LAB’s current ratio is 5:1, while accounting bodies’ standard current ratio is 2:1? Do you believe DIVIS LAB should aim to reduce its present ratio? (5 Marks)

Ans 3b.

Introduction

Usually, it is a financial metric that enables stockholders and buyers to assess a company’s capability to pay off its current liabilities with its present property. In other words, it offers a good idea of a company’s existing assets against its disadvantages.

The said ratio is also known as the (WCR) working capital ratio. It’s one of the few liquid ratios that can gauge a company’s capability to use cash equivalents and cash to satisfy