Financial Management Theory And Practice 7th Edition Prasanna Chandra - Solutions

Unlock your understanding of financial concepts with "Financial Management Theory And Practice 7th Edition" by Prasanna Chandra. Discover a comprehensive collection of solved problems and step-by-step answers designed to enhance your learning experience. Access the answers key and solutions manual for an in-depth exploration of each chapter. Our online platform offers free downloads of solutions in PDF format and a complete test bank to assist with your studies. Whether you are a student or an instructor, our textbook resources and instructor manual provide invaluable insights and chapter solutions to support your educational journey.

PTR is a venerable restaurant of Bangalore set up decades ago by Prakash Naik. Despite its phenomenal success, Prakash Naik was unwilling to set up branches be- cause he was concerned about the dilution of quality. In the last decade, however, alluring business opportunities and competitive
what is the meaning of financial assests
19.3 The management of Samata Company, subscribing to the net operating income ap- proach, believes that its cost of debt and overall cost of capital will remain at 8 per- cent and 12 percent, respectively. If the equity shareholders of the firm demand a return of 20 percent, what should be the
(c) What happens to the average cost of capital of Cox Corporation if it sells Rs. 10 million of additional equity (at par) to retire Rs. 10 million of outstanding debt? In answering the above questions assume that the net income approach applies and there are no taxes.
(b) What happens to the average cost of capital of Box Corporation if it employs Rs. 30 million of debt to finance a project that yields an operating income of Rs. 4 million?
19.2 The following information is available for two firms, Box Corporation and Cox Corporation. Net operating income Interest on debt Cost of equity Cost of debt Box Rs. 2,000,000 Cox Rs. 2,000,000 Nil 500,000 15% 15% 10% 10% Calculate the market value of equity, market value of debt, and market
19.1 Mahima Limited has a net operating income of Rs. 30 million. Mahima employs Rs. 100 million of debt capital carrying 10 percent interest charge. The equity capitalisation rate applicable to Mahima is 15 percent. What is the market value of Mahima under the net income method? Assume there is no
(k) What are the different kinds of dilution?
(j) What is a rights issue?
(i) Why is under-pricing of IPOs a universal phenomenon?
(h) Can a company making a public issue freely price its shares?
(g) What are the costs of a public issue?
(f) What role is played by the lead manager?
(d) What is book building?#!# (e) What are the principal steps in an IPO?
(c) What conditions should a company satisfy to make an IPO?
(b) What are the cons of going public?
1. Show schematically the planning system of a firm.
2. What are the elements of a corporate financial plan?
3. What are the benefits of financial planning?
4. Describe briefly the types of sales forecasting techniques and methods.
5. Explain the following methods for preparing the pro forma profit and loss account: (i) the percent of sales method, (ii) the budgeted expense method, and (iii) the com- bination method.
6. Describe the procedure for preparing the pro forma balance sheet.
7. Comment on the circularity problem because the profit and loss account and the balance sheet are interrelated.
8. Discuss the formula for estimating the external funds requirement.
9. State some of the reasons why firms may be disinclined to raise external equity capital.
10. Develop the formula expressing the growth rate (g) sustainable with internal equity terms of (i) the net profit margin ratio (m), (ii) the target dividend payout ratio (d), (iii) the assets-to-equity ratio (A/E), and (iv) the assets-to-sales ratio (A/S).
5.9 Chronomatics Limited has the following financial ratios: m = net profit margin ratio = 5 percent d = target dividend payout ratio = 60 percent A/E = assets-to-equity ratio = 2.5 A/S = assets-to-sales ratio = 1.4 (a) What is the rate of growth that can be sustained with internal equity?
(b) If Chronomatic Limited wants to achieve a 5 percent growth rate with internal equity, what change must be made in the dividend payout ratio, other ratios remain- ing unchanged?
(c) If Chronomatic Limited wants to achieve a 5 percent growth rate with internal equity, what change must be made in the assets-to-equity ratio, other ratios remain- ing unchanged?
(d) If Chronomatic Limited wants to achieve a 6 percent growth rate with internal equity, what should be the improvement in the profit margin, other ratios remaining unchanged?
(e) If Chronomatic Limited wants to achieve a 6 percent growth rate with internal equity, what change must occur in the assets-to-sales ratio, other ratios remaining unchanged?
5.10 The following information is given for Abacus Limited. Assets to sales ratio = 0.90 Net profit margin 6 percent Plough back ratio = 80 percent What is the internal growth rate
1. Why does money have time value?
2. State the general formula for the future value of a single amount.
3. What is the difference between compound and simple interest?
4. Explain the rule of 72.
5. Explain the rule of 69. How does it compare with the rule of 72?
6. State the general formula for calculating the present value of a single amount.
7. What is an annuity? What is the difference between an ordinary annuity and an annuity due?
8. State the formula for the future value of an annuity.
9. State the formula for the present value of an annuity.
10. What is a growing annuity? What is the formula for finding the present value of a growing annuity?
11. What is the formula for the present value of a perpetuity?
12. State the formula for the future value of a single cash flow after n years when com- pounding is done m times a year.
13. What is the relationship between the effective interest rate and the stated interest rate?
14. State the formula for calculating the present value of a single cash flow when dis- counting is done m times a year.
15. A firm's earnings grew from Re. 1 per share to Rs. 3 per share over a period of 10 years. The total growth was 200 percent, but the annual compound growth rate was less than 20 percent. Why?
6.1 Calculate the value 5 years hence of a deposit of Rs. 1,000 made today if the interest rate is (a) 8 percent, (b) 10 percent, (c) 12 percent, and (d) 15 percent.
6.2 If you deposit Rs. 5,000 today at 12 percent rate of interest in how many years (roughly) will this amount grow to Rs. 1,60,000? Work this problem using the rule of 72-do not use tables.
6.3 A finance company offers to give Rs. 8,000 after 12 years in return for Rs. 1,000 deposited today. Using the rule of 72, figure out the approximate interest offered.
6.4 You can save Rs. 2,000 a year for 5 years, and Rs. 3,000 a year for 10 years thereafter. What will these savings cumulate to at the end of 15 years, if the rate of interest is 10 percent?
6.5 Mr. Vinay plans to send his son for higher studies abroad after 10 years. He expects the cost of these studies to be Rs. 100,000. How much should he save annually to have a sum of Rs. 100,000 at the end of 10 years, if the interest rate is 12 percent?
6.6 A finance company advertises that it will pay a lump sum of Rs. 10,000 at the end of 6 years to investors who deposit annually Rs. 1,000. What interest rate is implicit in this offer?
6.7 Someone promises to give you Rs. 5,000 after 10 years in exchange for Rs. 1,000 today. What interest rate is implicit in this offer?
6.8 Find the present value of Rs. 10,000 receivable after 8 years if the rate of discount is (i) 10 percent, (ii) 12 percent, and (iii) 15 percent.Case A: Stated rate of interest is 12 percent and the frequency of compounding is six times a year. Case B: Stated rate of interest is 24 percent and
6.20 If the interest rate is 12 percent how much investment is required now to yield an income of Rs. 12,000 per year from the beginning of the 10th year and continuing thereafter forever?
6.21 You have a choice between Rs. 5,000 now and Rs. 20,000 after 10 years. Which would you choose? What does your preference indicate?
6.22 Mr. Raghu deposits Rs. 10,000 in a bank now. The interest rate is 10 percent and compounding is done semi-annually. What will the deposit grow to after 10 years? If the inflation rate is 8 percent per year, what will be the value of the deposit after 10 years in terms of the current rupee?
6.23 How much should be deposited at the beginning of each year for 10 years in order to provide a sum of Rs. 50,000 at the end of 10 years?
question no 10.4 10.4 Prabhu Limited has a current value of 10,000. The face value of its outstanding bonds (the only debt on its balance sheet) is 8000. These are 1year discount bonds with an obligation of 8000 in year 1. The risk-free interest rate is 12.7 percent and the vari- ance of the
6.24 A person requires Rs. 20,000 at the beginning of each year from 2005 to 2009. How much should he deposit at the end of each year from 1995 to 2000? The interest rate is 12 percent.
6.25 What is the present value of Rs. 2,000 receivable annually for 30 years? The first receipt occurs after 10 years and the discount rate is 10 percent.
6.26 After five years Mr. Ramesh will receive a pension of Rs. 600 per month for 15 years. How much can Mr. Ramesh borrow now at 12 percent interest so that the borrowed amount can be paid with 30 percent of the pension amount? The interest will be accumulated till the first pension amount becomes
6.27 Mr. Prakash buys a scooter with a bank loan of Rs. 6,000. An instalment of Rs. 300 is payable to the bank for each of 24 months towards the repayment of loan with inter- est. What interest rate does the bank charge?
6.28 South India Corporation has to retire Rs. 10 million of debentures each at the end of 8, 9, and 10 years from now. How much should the firm deposit in a sinking fund account annually for 5 years, in order to meet the debenture retirement need? The net interest rate earned is 8 percent.
6.29 Mr.Longman receives a provident fund amount or Rs. 1,00,000. He deposits it in a bank which pays 10 percent interest. If he withdraws annually Rs. 20,000, how long can he do so?
6.30 Phoenix Company borrows Rs. 500,000 at an interest rate of 14 percent. The loan is to be repaid in 4 equal annual instalments payable at the end of each of the next 4 years. Prepare the loan amortisation schedule.
6.31 You want to borrow Rs. 1,500,000 to buy a flat. You approach a housing company which charges 13 percent interest. You can pay Rs. 200,000 per year toward loan amortisation. What should be the maturityperiod of the loan?
6.32 You are negotiating with the government the right to mine 100,000 tons of iron ore per year for 15 years. The current price per ton of iron is Rs. 3000 and it is expected to increase at the rate of 6 percent per year. What is the present value of the iron ore that you can mine if the discount
6.33 As a winner of a competition, you can choose one of the following prizes:a. Rs. 500,000 nowb. Rs. 1,000,000 at the end of 6 yearsc. Rs. 60,000 a year foreverd. Rs. 100,000 per year for 10 yearse. Rs. 35,000 next year and rising thereafter by 5 percent per year forever. If the interest rate is
6.34 Pipe India owns an oil pipeline which will generate Rs. 120 million of cash income in the coming year. It has a very long life with virtually negligible operating costs. The volume of oil shipped, however, will decline over time and, hence, cash flows will decrease by 3 percent per year. The
6.35 An oil well presently produces 50,000 barrels per year. It will last for 15 years more, but the production will fall by 5 percent per year. Oil prices are expected to increase by 3 percent per year. Presently the price of oil is $50 per barrel. What is the present value of the well's
6.36 An oil well presently produces 80,000 barrels per year. It will last for 20 years more, but the production will fall by 6 percent per year. Oil prices are expected to increase by 4 percent per year. Currently the price of oil is $60 per barrel. What is the present value of the well's
6.37 You are considering whether your savings will be enough to meet your retirement needs. You saved Rs. 100,000 last year and you expect your annual savings to increase by 8 percent per year for the next 20 years. If your savings can be invested at 9 percent, how much would you have at the end of
6.38 A bank offers an interest rate of 8 percent on deposits made with it. If the compound- ing is done on a weekly basis, what is the effective interest rate?
1. How is the rate of return on an asset defined?
2. What is standard deviation? What are its important features?
3. Why is standard deviation employed commonly in finance as a measure of risk?
4. Describe the key features of normal distribution.
5. Explain how diversification influences risk.
6. Distinguish between unique risk and market risk.
7. Define the standard deviation of the return on a two-security portfolio.
8. How is beta calculated?
9. What is the relationship between risk and return as per CAPM?
10. What is a defensive security, neutral security, and aggressive security?
11. What is the effect of change in risk aversion on the security market line?
12. "The increase in the risk-premium of all stocks, irrespective of their beta, is the same, when risk aversion increases". Comment.
13. What are the investment implications of CAPM?
8.1 The stock of Box Limited performs well relative to other stocks during recessionary periods. The stock of Cox Limited, on the other hand, does well during growth periods. Both the stocks are currently selling for Rs. 100 per share. You assess the rupee return (dividend plus price) of these
1. What is the risk of a 2-security portfolio? n-security portfolio?
2. What is covariance? coefficient of correlation?
3. What is an efficient portfolio?
4. Explain the nature of a risk-return indifference curve.
5. What is the efficient frontier, when investors can lend or borrow at the risk-free rate?
6. State the assumptions underlying the CAPM.
7. What is the capital market line? Security market Line?
8. What is the empirical evidence on the CAPM?
9. Define the return-generating process and the equilibrium risk-return relationship as per the APT.
10. What is a multifactor model? Describe the types of multifactor models used in practice?
1. Contrast the salient features of the traditional and modern approaches to financial management.

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