Taxmans Fundamentals Of Financial Management 14th Edition R.P. Rustagi - Solutions

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Evaluate firm profitability using the income statement.
Describe the content of the four basic financial statements and discuss the importance of financial statement analysis to the financial manager.
Go to the Motley Fool website (www.fool.com), and under the tab “Guides,” click on “Retirement.” Describe the information available here for planning for your retirement.
Go to the Market Watch website (www.marketwatch.com), and click on “Sections”then on “Personal Finance.” This is a great resource for information and help in managing your personal finances. Find an article you like, read it, and write a summary of it. Consider bookmarking this
Go to Yahoo Finance (http://finance.yahoo.com), and enter “GOOG” (the ticker symbol for Alphabet, formerly Google) in the “Enter Symbol(s)” box at the top of the page. What is the price at which the stock last traded? What is the last trade time, and how long ago was that? What is the
Describe the tax benefits to a corporation of issuing debt rather than issuing stock.
Describe the costs and benefits of owning mutual funds.
What country dominates in terms of the stock market and total financial assets? Of the United Kingdom, Germany, and France, which country has the most financial assets, and which country has the least?
The distribution of financial assets around the world is described in Finance in a Flat World: Where’s the Money Around the World on page
In Finance for Life: Controlling Costs in Mutual Funds on page 56, the importance of keeping expenses down is discussed. The Financial Industry Regulatory Authority website provides an easy way to compare mutual funds. Go to the website, http://apps.finra.org/fundanalyzer/1/fa.aspx, and enter
What makes preferred stock “preferred”?
What is the difference between a debt security and an equity security?
What is a mutual fund, and how does it differ from an exchange-traded fund (ETF)?
Describe the difference between the primary market and the secondary market.
What do investment banks do in the financial markets?
What is a financial intermediary? List and describe the principal types of financial intermediaries in the U.S. financial markets.
What are the three principal sets of players that interact in the financial markets?
In Regardless of Your Major: Defined Benefit vs. Defined Contribution Retirement Plans on page 52, two types of pension plans are discussed. Describe each. Which type is now the dominant type in use?
How does common stock differ from preferred stock?
How is a primary market different from a secondary market?
What are debt and equity securities, and how do they differ?
What are the two principal types of private equity firms?
What is a hedge fund, and how does it differ from a mutual fund?
What are examples of investment companies?
How do commercial banks differ from other, nonbank financial intermediaries?
Explain how individuals and firms use financial intermediaries to raise money in the financial markets.
Describe the different securities markets for bonds and stocks.
Distinguish between commercial banks and other financial institutions in the financial marketplace.
Describe the structure and functions of financial markets
Briefly discuss the incentives for financial managers to conduct their business in an ethical manner.
What goal do the owners of a for-profit business generally strive for?
Who really owns a corporation, and how does that impact the goal of the firm?
List the three main forms of business organization, and describe their advantages and disadvantages. If you were to consider starting up a lawn-care business for the summer, what type of business organization might you use?
Briefly discuss why the people who make financial decisions must focus on incremental cash flows when evaluating new projects.
According to Principle 2, how should investors decide where to invest their money?
Explain the three types of business decisions that a financial manager faces.
In Regardless of Your Major: Welcome to the World of Finance on page 36, we discussed how the topic of Principle 1, the time value of money, is relevant to both your personal and your professional lives. Describe a decision you might face in the future that will require you to consider the future
What do we mean when we say that market prices reflect information?
A fundamental guiding principle of investing is that higher risks require higher rewards or returns. Give two examples of the risk-return relationship.
What are the five principles of finance?
What is the Sarbanes–Oxley Act of 2002? What has it accomplished?
Why is ethics relevant to the financial management of a firm?
What is the goal of a firm?
What are the duties of a corporate controller?
What are the duties of a corporate treasurer?
Explain why large and growing firms tend to choose the corporate form of organization.
What are the primary differences among a sole proprietorship, a partnership, and a corporation?
List three nonfinance careers to which the study of finance applies.
What are the three basic types of issues that arise in business that are addressed by the study of business finance?
Explain the five principles of finance that form the basis of financial management for both businesses and individuals.
Understand the role of the financial manager within the firm and the goal for making financial choices.
Identify the key differences among the three major legal forms of business.
Understand the importance of finance in your personal and professional lives and identify the three primary business decisions that financial managers make.
Satija company has the following capital structure on 1 July 2015 :Equity Shares (4,00,000) 80,00,000 10% Preference Shares 20,00,000 10% Debentures 60,00,000 1,60,00,000 The share of a company currently sells for 25.It is expected that the company will pay a dividend of 2 per share which will
The following figures are taken from the current balance sheet of Delaware & Co.Capital 8,00,000 Share Premium 2,00,000 Reserves 6,00,000 Shareholder’s funds 16,00,000 12% Perpetual debentures 4,00,000 An annual ordinary dividend of 2 per share has just been paid. In the past, ordinary
Equity shares (F.V 10 each) of SRCC Ltd. are being quoted at PE of 7.5 times. The retained earnings of the company being 6 at 40%.(i) Find out the cost of equity, ke, if the growth rate of the firm is 7%.(ii) Find out the indicated market price of the shares, given that the ke remains as above
The following information has been extracted from the balance sheet of Fashions Ltd. in Lacs Equity Share Capital 400 12% Debentures 400 18% Term loan 1,200 2,000 (a) Determine the weighted average cost of capital of the company. It had been paying dividends at a consistent rate of 20% per annum.
Shares of XYZ Ltd. are currently selling at 170 each. The company has been regularly paying dividends for last several years as follows:Year Amount 1 12.00 2 12.72 3 13.48 4 14.29 5 15.15 6 16.07 Find out the growth rate of the company, given that the company follows a policy of fixed DP Ratio.
The following information is available from the Balance Sheet of a Company :Equity Share Capital–20,000 shares of 10 each 2,00,000 Reserves and Surplus 1,30,000 8% Debentures 1,70,000 The rate of tax for the company is 30%. Current level of Equity Dividend is 12%. Calculate the weighted
In considering the most desirable capital structure for a company, the following estimates of the cost of debt capital (after tax) have been made at various levels of debt-equity mix :Debt as Percentage of Cost of Debt Cost of Equity Total Capital Employed % %.0 7.0 15.0 10 7.0 15.0 20 7.0 15.5 30
PQR & Co. has the following capital structure as on Dec. 31.Equity Share Capital (5000 shares of 100 each) 5,00,000 9% Preference Shares 2,00,000 10% Debentures 3,00,000 The equity shares of the company are quoted at 102 and the company is expected to declare a dividend of 9 per share
International Foods Limited has the following capital structure :Book Value Market Value Equity Capital (25,000 shares of 10 each) 2,50,000 4,50,000 13% Preference Capital (500 shares of 100 each) 50,000 45,000 Reserves and Surplus 1,50,000 —12% Debentures (1500 debentures of 100 each)
A Limited has the following capital structure:Equity share capital (2,00,000 shares) 40,00,000 6% Preference shares 10,00,000 8% Debentures 30,00,000 80,00,000 The market price of the company’s equity share is 20.It is expected that company will pay a dividend of 2 per share at the end of
The XYZ & Co., wishes to find out its weighted marginal cost of capital, WMCC, based on target capital structure proportions.Using the data given below, find out the WMCC and also show the WMCC curve.Source Proportion Range Cost Equity share capital 50% Up to 3,00,000 13.00%3,00,000–7,50,000
The ABC company has the following capital structure and is considered to be an optimum.Equity share capital (1,00,000 shares) 16,00,000 11% Preference share capital 1,00,000 16% Debentures 3,00,000 20,00,000 The company has paid a dividend of 2.36 with a growth rate of 10%. The company’s
XYZ Ltd. wishes to raise additional funds of 10,00,000 to take up an investment proposal. Following information is provided :Retained Earnings 2,10,000 Earnings Per share 4 Dividend Payout Ratio 50%Expected Growth Rate 10%Current Market Price of Share 44 Debt-Equity Mix 30%/70%Cost of Debts
The following is the capital structure of Simons Company Ltd.Equity shares: 10,000 shares of 100 each 10,00,000 10% Preference Shares of 100 each 4,00,000 8.57% Debentures 6,00,000 20,00,000 The market price of the company’s share is 110 and it is expected that a dividend of 10 per
The following information is provided in respect of the specific cost of capital of different sources along with the book value (BV) and market value (MV) weights.Source C/C BV MV Equity share capital 18% .50 .58 Preference share 15% .20 .17 Long term debts 7% .30 .25 (i) Calculate the Weighted
X Ltd. has assets of 32,00,000 that have been financed by 18,00,000 of equity shares (of 100 each), General Reserve of 3,60,000 and Debt of 10,40,000. For the year ended 31-3-2016 the company’s total profits before interest and taxes were 6,23,000. X Ltd. pays 8% interest on borrowed
OR Q2. (b) Total life of the Machine 6 years Remaining life at present (6–1) 5 years Calculation of NPV on Incremental Cash Flows:Incremental Outflows (` 21,000–` 15,000) ` 6,000 Incremental Depreciation [(` 21,000÷5) –(` 18,000÷6)] ` 1,200 Incremental Savings per annum (` 20,000–` 17000)
Q2. (b) Decision based on Certainty Equivalents Approach:Project A:Year Cash Flows C.E.Factor C.E. Cash Flows PVF (8%,n)PV 1 ` 1,80,000 0.8 `1,44,000 0.926 `1,33,344 2 ` 2,00,000 0.7 1,40,000 0.857 1,19,980 3 ` 2,00,000 0.6 1,20,000 0.794 95,280 PV of Inflows 3,48,604 Less: Cost 3,40,000 Net
1. (a) The decision to purchase debenture can be taken up as follows Required Rate 12%Required Rate 10%Annual Interest `1200 `1200 Required Rate of Return 12% 10%Required Rate 12%Required Rate 10%PV of Interest Perpetuity `1200÷.12 `1200÷.10 = ` 10,000 ` 1,2000 Current Market Price `10500 `10500
(a) Write a short note on :(i) the costs associated with inventory management.(ii) Credit Policy(b) Birla and Ambani Company Ltd., has the total capital structure of ` 80,00,000 consisting of:Ordinary Shares (2,00,000 shares) = 50.0%10% Preference Share Capital = 12.5%14% Debentures = 37.5 %The
(a) What are the various factors which affect business and financial risk of a firm? Differentiate between the two types of risks.(b ) Following are the details regarding three companies:-‘A’ Ltd. ‘B’ Ltd. ‘C’ Ltd.Internal Rate of Return (r) 15% 10% 8%Cost of Capital (k) 10% 10%
(a) Explain the factors which should be taken into account while making a capital budgeting decision?(b) ‘L’ Ltd. And ‘U’ Ltd. are identical except that ‘L’ Ltd., has issued 10% debentures of ` 9,00,000 while ‘U’ Ltd.. has only equity shares in its capital structure. Both the firms
(a) What are the similarities and dissimilarities between Net Present Value (NPV) and Internal Rate of Return (IRR)?Which of these methods will you prefer when they give different ranking of investment proposals? Why?.(b) Google Enterprise Ltd., has two investment proposals -Proposal A and Proposal
(a) A Company is selling a debenture which will provide annual interest payment of ` 1,200 for indefinite number of years. Should the debenture be purchased, if it is being quoted in the market for ` 10,500 and the required rate of return is 12 per cent? What will be your answer if the required
1. XYZ Ltd. recently paid a dividend of 2.00 per share and it is a fairly risky company with a cost of equity of 25%. A summary of dividends and earnings per share is given below:Dividends Earnings 2015 2.00 4.50 2014 1.80 3.50 2013 1.70 4.00 2012 1.40 3.00 2011 1.30 2.50 Any new
1. A chemical company has been growing at a rate of 18%per year in recent years. This abnormal growth is expected to continue for another 4 years; then it is likely to grow at the normal rate (gn) of 6%. The required rate of return on the shares of the investment community is 12%, and the
1. A large-sized chemical company has been expected to grow at 14% per year for the next 4 years and then to grow indefinitely at the rate 5%. The required rate of return on the equity shares is 12%. Assume that the company paid a dividend of 2 per share last year (D0= 2). Determine the market
1. A company is currently paying a dividend of 2.00 per share. The dividend is expected to grow at a 15%annual rate for three years, then at 10% rate for the next three years, after which it is expected to grow at a 5% rate forever, (a) What is the present value of the share if the
1. ABC Company had sold 1,000 12% perpetual debentures 10 years ago. Interest rates have risen since then, so that, debentures of this company are now selling at 15% yield basis.(i) Determine the current indicated/expected market price of the debentures. Would you buy the debentures for
1. The current price of a company share is 70.The company is expected to pay a dividend of 4.20 per share increasing with an annual growth rate of 5%. If an investor’s required rate of return is 10%, should he buy the share?
1. A mining company’s iron ore reserves are being depleted, and its cost of recovering a declining quantity of iron ore are raising each year. As a sequel to it, the company’s earnings and dividends are declining, at a rate of 8% per year. If the previous year’s dividend (D0)was 10 and
1. A company has a book value per share of 137.80. Its return on equity is 15% and it follows a policy of retaining 60% of its earnings. If the opportunity cost of capital is 18%, what would be the price of the share today?
Examine the relevance of dividend in valuation of equity shares. How would you value the shares of a company that does not pay any dividend?
What is the relationship between earnings and value of a share?
What are different approaches to valuation of an equity share? Which of these has the strongest theoretical roots?
What do you mean by constant growth in dividend? How does growth factor affects the value of the share?
Examine the relationship between interest rate, time to maturity and bond valuation.
What are the factors involved in Bond valuation? Explain with example, the valuation of redeemable and perpetual bond.
An investor buys a bond today and sells after 3 months the rate of return realised in known as:(a) Yield to Maturity,(b) Current yield,(c) Holding Period Return,(d) Required Rate of Return.
What are the differences and similarities in valuation of bonds and preference shares?(c) Remains Constant,(d) None of the above.
Explain the concept of valuation of securities. Why is it important for the financial manager to understand valuation?
What are the different methods of valuation of assets?Explain in detail the economic value concept.
Write short notes on :(a) Yield to Maturity.(b) Valuation of Deep Discount Bonds.(c) Different Valuation Concepts.
An investor buys a bond today and sells after 3 months the rate of return realised in known as:(a) Yield to Maturity,(b) Current yield,(c) Holding Period Return,(d) Required Rate of Return.
If Coupon rate is less than Required Rate of Return; as the maturity approaches the discount on bond:(a) Increases,(b) Decreases,(c) Remains Constant, (d) None of the above.
YTM of a Bond is not affected by:(a) Coupon Rate,(b) Issue Price,(c) Redemption Value,(d) Interest Amount.
If the coupon rate and required rate of return are equal, the value of the bond is equal to:(a) Market Value,(b) Par Value,(c) Redemption Value,(d) None of the above.

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Taxmans Fundamentals Of Financial Management 14th Edition R.P. Rustagi - Solutions

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