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32503 B Long term capital management



  1. What are the various sources of Long term Finance? Explain in detail.
  2. Write short note on ICICI and EXIM
  3. Enumerate any 2 instruments of Money market. Explain them in detail.
  4. Write short notes on OTCEI and NSDL
  5. The following figures are collected from the annual report of XYZ Ltd:

Net Profit

Rs. 30 lakhs

Outstanding 12% Preference shares

Rs. 100 lakhs

No of equity shares

3 lakhs

Return on Investment


What should be the approximate dividend pay out ratio so as to keep the share price at Rs. 42 by Walter model?

  1. Engineers Ltd. is in the business of manufacturing nut bolts. The machinery required may be bought or taken on lease. The cost of machine is Rs. 20,00,000 having a useful life of 5 years with salvage value of Rs. 4,00,000 (consider sort term capital loss/ gain for Income Tax).the purchase of machine can be financed by bank loan @ 20%. Alternatively the machine can be procured on a 5 year lease of Rs. 6,00,000 p.a. The company follows written down value of depreciation @ 25%; tax rate is 35% and cost of capital is 14%. Advice the company whether to buy the machine or take on lease.
  2. A company, East Berwick Enterprises, has a capital structure as follows:

    Total Capital

    Rs. 1,000,000


    Rs. 400,000

    Preferred Stock

    Rs. 100,000

    Common Equity

    Rs. 500,000

    What would be the minimum expected return from a new capital investment project to satisfy the suppliers of the capital? Assume the applicable tax rate is 40%, interest on debt is 5%. The preferred and common stocks are selling in the market for Rs. 24 and Rs. 130 a share respectively, and they are expected to pay a dividend of Rs. 1.50 and Rs. 4.50, respectively, in one year. The company's dividends are expected to grow at 5% per year. The firm would like to maintain the existing capital structure to finance the new project.

  3. A company’s cost of capital for specific sources is an under:

Cost of Debentures 5%

Cost of Preference Shares 10%

Cost of Equity Shares 14%

Cost of Retained Earnings 13%

The company wishes to raise Rs. 5,00,000 for the expansion of its plant. It is estimated that Rs. 1,00,000 will be available as retained earnings and the balance of the additional funds will be raised as under:

Debenture issue Rs. 3,00,000

Preference Shares Rs. 1,00,000

Using Marginal Weights, calculate Weight Average Cost of Capital.

  1. A new project is under consideration by a company which involves a capital investment of $15,000,000. Fixed interest on debt capital is 12% and tax rate is 50%. If the debt-equity ratio insisted by the financing agencies is 2:1, calculate the point of indifference. The new equity shares can be issued for $100 par value. There are no preference shares.
  2. What are the various rights of shareholders and debenture holders?
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