Q4. (a) "For most investment decisions that a firm faces, NPV is either a superior decision criterion or at least it is considered a good technique to decide for investment." What are your considerations? Do you think that other techniques can also provide better results while taking investment decision? If Yes, please elaborate. Q4. (b) J & K Ltd. Provided the following information related to the book values of debentures and equity: Equity Share Capital 40,00,000 12% Preference shares 10,00,000 10% Debentures 30,00,000 The equity share of the company sells for Rs. 20 and company has taken decision of providing dividend of Rs 2 per equity share. The dividend will further grow at 5% forever. Tax rate is 35%. You are required to compute weighted average cost of capital (WACC) based on the given information. Company is planning to raise Rs 20,00,000 by issuing 12 % debentures, but then equity share price will fall to Rs. 16 per share and company has to increase dividend to Rs. 2.40, growth rate remains unchanged. Do you think this will have some impact on WACC, if Yes, then calculate new WACC and compare with the previous one.
Q4. (a) "For most investment decisions that a firm faces, NPV is either a superior decision criterion or at least it is considered a good technique to decide for investment." What are your considerations? Do you think that other techniques can also provide better results while taking investment decision? If Yes, please elaborate. Q4. (b) J & K Ltd. Provided the following information related to the book values of debentures and equity: Equity Share Capital 40,00,000 12% Preference shares 10,00,000 10% Debentures 30,00,000 The equity share of the company sells for Rs. 20 and company has taken decision of providing dividend of Rs 2 per equity share. The dividend will further grow at 5% forever. Tax rate is 35%. You are required to compute weighted average cost of capital (WACC) based on the given information. Company is planning to raise Rs 20,00,000 by issuing 12 % debentures, but then equity share price will fall to Rs. 16 per share and company has to increase dividend to Rs. 2.40, growth rate remains unchanged. Do you think this will have some impact on WACC, if Yes, then calculate new WACC and compare with the previous one.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Transcribed Image Text:Q4. (a) "For most investment decisions that a firm faces, NPV is either a superior decision criterion or
at least it is considered a good technique to decide for investment." What are your considerations? Do
you think that other techniques can also provide better results while taking investment decision? If
Yes, please elaborate.
Q4. (b) J & K Ltd. Provided the following information related to the book values of debentures and
equity:
Equity Share Capital
40,00,000
12% Preference shares
10,00,000
10% Debentures
30,00,000
The equity share of the company sells for Rs. 20 and company has taken decision of providing
dividend of Rs 2 per equity share. The dividend will further grow at 5% forever. Tax rate is 35%. You
are required to compute weighted average cost of capital (WACC) based on the given information.
Company is planning to raise Rs 20,00,000 by issuing 12 % debentures, but then equity share price
will fall to Rs. 16 per share and company has to increase dividend to Rs. 2.40, growth rate remains
unchanged. Do you think this will have some impact on WACC, if Yes, then calculate new WACC and
compare with the previous one.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 6 steps
Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education