Question

Krishna Ltd. is manufacturing steel at its plant at Noida. Due to economic growth, the demand for steel is also growing. The company is planning to set up a new steel plant at Gurgaon. It needs Rs. 800 crore to start the new plant. It decides to raise Rs. 300 crore through debentures, Rs. 200 crore through long-term loan from banks and Rs. 200 crore by issue of equity share to the public. It decided to finance the remaining amount by utilizing its
reserves and surplus.
1. State the importance of financial planning for this company.
2. What is the capital structure of this company? Explain.
3. Identify the financial decision involved when the company decides to raise Rs. 800 crore from different sources of funds.
4. How will the payment of dividend in Krishna Ltd. be affected? Explain.
Question 6
Abinaya company Ltd. expresses a net operating income of Rs. 2,00,000. It has Rs. 8,00,000 to 7% debentures. The overall capitalization rate is 10%.
(a) Calculate the value of the firm and the equity capitalization rate (or) cost of equity according to the net operating income approach.
(b) If the debenture debt is increased to Rs. 12,00,000. What will be the effect on the value of the firm, the equity capitalization rate?

Answer 1

Explanation:

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