(a)ABC Ltd is considering raising of funds of 100 lacs by one of the alternative method....

Transcribed Image Text:

(a)ABC Ltd is considering raising of funds of 100 lacs by one of the alternative method. (1) 14% Institutional Loan.(II) 13% Non Convertible Debentures. The term loan option would attract no separate incidental cost. The debentures would have to be issued at discount of 2.5% and cost of issue is 100000. Advise ABC Ltd as to which is is better option. Assume tax rate 50% 9(b) Annu Ltd. is examining two mutually exclusive investment proposals. The management uses Net Present Value Method to evaluate new investment proposals. Depreciation is charged using Straight-line Method. Other details relating to these proposals are: Particulars Annual Profit before tax (*) Cost of the Project () Salvage Value (*) Working Life Cost of capital Corporate Tax Rate Proposal X 13,00,000 90,00,000 1,20,000 4 years 10% 30% Proposal Y 24,50,000 180,00,000 1,50,000 5 Years 10% 30% The present value of 1 at 10% discount rates at the end of first, second, third, fourth and fifth year are 0.9091; 0.8264; 0.7513; and 0.6209 respectively. You are required to advise the company on which proposal should be taken up by it. [4+8 marks] (a)ABC Ltd is considering raising of funds of 100 lacs by one of the alternative method. (1) 14% Institutional Loan.(II) 13% Non Convertible Debentures. The term loan option would attract no separate incidental cost. The debentures would have to be issued at discount of 2.5% and cost of issue is 100000. Advise ABC Ltd as to which is is better option. Assume tax rate 50% 9(b) Annu Ltd. is examining two mutually exclusive investment proposals. The management uses Net Present Value Method to evaluate new investment proposals. Depreciation is charged using Straight-line Method. Other details relating to these proposals are: Particulars Annual Profit before tax (*) Cost of the Project () Salvage Value (*) Working Life Cost of capital Corporate Tax Rate Proposal X 13,00,000 90,00,000 1,20,000 4 years 10% 30% Proposal Y 24,50,000 180,00,000 1,50,000 5 Years 10% 30% The present value of 1 at 10% discount rates at the end of first, second, third, fourth and fifth year are 0.9091; 0.8264; 0.7513; and 0.6209 respectively. You are required to advise the company on which proposal should be taken up by it. [4+8 marks]

Answer rating: 100% (QA)

The detailed ... View the full answer