(a) Equity of KGF Ltd. (KGFL) is Rs. 410 Crores, its debt, is worth Rs. 170...

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(a) Equity of KGF Ltd. (KGFL) is Rs. 410 Crores, its debt, is worth Rs. 170 Crores. Printer Division segments value is attributable to 74%, which has an Asset Beta (p) of 1.45, balance value is applied on Spares and Consumables Division, which has an Asset Beta (sc) of 1.20 KGFL Debt beta (o) is 0.24. You are required to calculate: (i) Equity Beta (e), (ii) Ascertain Equity Beta (BE), if KGF Ltd. decides to change its Debt Equity position by raising further debt and buying back of equity to have its Debt Equity Ratio at 1.90. Assume that the present Debt Beta (Boi) is 0.35 and any further funds raised by way of Debt will have a Beta (oz) of 0.40. Whether the new Equity Beta (e) justifies increase in the value of equity on account of leverage? (12 Marks) (b) Ms. Preeti, a school teacher, after retirement has built up a portfolio of Rs. 1,20,000 which is as follow: Stock ABC Ltd. DEF Ltd. GHI Ltd. JKL Ltd. No. of shares Market price per share (*) Beta 1000 50 0.9 500 20 1.0 800 200 25 1.5 200 1.2 Her portfolio consultant Sri Vijay has advised her to bring down the, beta to 0.8. You are required to compute: (i) Present portfolio beta (ii) How much risk free investment should be bought in, to reduce the beta to 0.8 ? (4 Marks) (c) Explain advantages of bringing Venture Capital in the company. (4 Marks) (a) Equity of KGF Ltd. (KGFL) is Rs. 410 Crores, its debt, is worth Rs. 170 Crores. Printer Division segments value is attributable to 74%, which has an Asset Beta (p) of 1.45, balance value is applied on Spares and Consumables Division, which has an Asset Beta (sc) of 1.20 KGFL Debt beta (o) is 0.24. You are required to calculate: (i) Equity Beta (e), (ii) Ascertain Equity Beta (BE), if KGF Ltd. decides to change its Debt Equity position by raising further debt and buying back of equity to have its Debt Equity Ratio at 1.90. Assume that the present Debt Beta (Boi) is 0.35 and any further funds raised by way of Debt will have a Beta (oz) of 0.40. Whether the new Equity Beta (e) justifies increase in the value of equity on account of leverage? (12 Marks) (b) Ms. Preeti, a school teacher, after retirement has built up a portfolio of Rs. 1,20,000 which is as follow: Stock ABC Ltd. DEF Ltd. GHI Ltd. JKL Ltd. No. of shares Market price per share (*) Beta 1000 50 0.9 500 20 1.0 800 200 25 1.5 200 1.2 Her portfolio consultant Sri Vijay has advised her to bring down the, beta to 0.8. You are required to compute: (i) Present portfolio beta (ii) How much risk free investment should be bought in, to reduce the beta to 0.8 ? (4 Marks) (c) Explain advantages of bringing Venture Capital in the company. (4 Marks)

Answer rating: 100% (QA)

a i First we need to calculate the leveraged betas for both divisions Printer Division Levered Beta PL Asset Beta Pp 1 Corporate Debt to Equity Ratio 145 1 170410 212 Spares and Consumables Division L... View the full answer