Question

Ajay Ltd. is Considering the Installation of new project costing Rs. 68,32,000, Expected Annual Sales - 76,86,000 & V.C. - 60% of Sales.​

Answer 1

Answer:

(i) (d) 5 year Public Deposit. 5 year deposit has maturity of more than 1 year. Hence it is not a security

in the money market.

(ii) (c) The dividend payout ratio is 0%. As per MM approach the dividend payout ratio is 100%, i.e

there are no retained earnings.

(iii) (b) To know with certainty the quantum of future cash flows.

(iv) (b) 25%.

According to Du-Pont Analysis,

⎟

⎟

⎠

⎞

⎜

⎜

⎝

⎛ ⎟×

⎠

⎞ ⎜

⎝

⎛ ⎟×

⎠

⎞ ⎜

⎝

⎛ = Av.Equity

Av.Assets

Av.Assets

Sales

Sales

Net profit ROE

( ) 2.50

0.40

1

1 0.60

1

Av.Equity

Av. Assets = = − =

ROE= 0.05 × 2 × 2.5 = 0.25 i.e 25%.

(v) (a) Current Ratio is less than 1.00. Current Ratio less than 1 indicates use of Current Assets in

funding long term liabilities.

(vi) (d) 102

P3=D4/Ke – g=Do(1+g)4 /Ke – g = 3(1+0.08)4

/0.12-0.08=3 × (1.360)/0.04=4.08 / 0.04=Rs. 102/-

(vii) (c) Rs. 57.04/ US $.

According to purchase power parity, spot rate after 5 years

= Rs. 45 × [(1+.08)/(1+.03)] = 45[1.469/1.159] = 45 × 1.2675 = 57.04.

(viii) (d) Rs. 225.8 lac.

The working capital requirement is for 45 days of the weighted operating cycle plus normal

cash balance = Sales per day × weighted operating cycle+ cash balance requirement

= Rs. 5 lac × 45 + Rs. 0.80 lac = Rs. 225.80 lac.

(ix) (a) Rs. 23,600,000. Rs. 47.20 × 5,00,000 = Rs. 2,36,00,000.

(x) (c) Rs.17.00.

Value of put option = Value of Call option + PV of exercise price – Stock price

= Rs. (39.60+217.40-240) = Rs. 1

Explanation:

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