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RVR Engineering Company is planning to purchase a machine for its expansion process. Two similar
machines are available in the market. Machine A has a cost of Rs. 80,000 and a net cash flow of Rs. 25,000
per year for six years. A substitute machine B would cost Rs. 55,000 and generate net cash flow of Rs.
19,000 per year for six years. The required rate of return on both machines is 11%. Calculate the NPV and
IRR for the machines and suggest which machine should be accepted and why?

 
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The following information relates to Rama & Co.

Earnings of the company Rs. 6,00,000
Paid up equity share capital Rs. 30,00,000
Dividends Paid Rs. 3,00,000
Cost of equity capital 10%
Calculate share price as per Walter¶s model assuming Rs. 100 face value and give optimal dividend policy to
the company.

 
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VS International Ltd., has a capital structure (all equity) comprising of Rs. 5,00,000 each share of Rs. 10.
The firm wants to raise an additional capital of Rs. 2,50,000 for expansion programme. The firm has four
alternative financial plans I, II, III, IV. The firm is able to earn an operating profit of Rs. 80,000 after getting
additional capital. The tax rate is 50%. Calculate EPS for all four alternatives and select the preferable
financial plan.
Financial Plans:
1. Raise entire amount by issue of new equity capital.
2. Raise 50% as equity and 50% as debt capital with 10% interest.
3. Raise the entire amount as 12% debentures.
4. Raise 50% equity capital and 50% preference share capital at 10%.

 
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While preparing a project report on behalf of sagar polymers you have collected following information.
Estimate working capital required to finance a level of activity of 52,000 units of production.

Cost Per Unit (Rs)

Raw materials 40
Direct Labour 15
Overheads (excluding depreciation) 30
 







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Profit 30
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1. Average raw materials in stock: 1 Month

2. Average work in progress: ½ Month
3. Finished goods remain in ware house, on an average for a month.
4. Suppliers for raw materials allow credit for 1 Month
5. Debtors are provided 2 months credit and half of the sales are on cash basis.
6. Time lag in payment of wages: 1 Month
7. Time lag in payment of overhead expenses: 1 Month
8. Cash balance is expected to be Rs. 12,500.