Corporate Finance
Practice Questions
1) Explain the various financial decisions taken by the Finance Manager of a firm
2) Explain the role of a finance manager in a large organisations
3) Describe the need to an effective corporate governance structure for modern companies
4) Describe the role of Board of Directors in implementing corporate governance
5) Create a loan amortization schedule assuming imaginary figures for loan amount, annual
interest rate and no of monthly instalments of repayment
6) Compute the present value of Rs. 5000000 to be received after 15 years at 5% pa discount
rate
7) Compute the future value of Rs. 100000 to be invested for 4 years at 12% pa
8) Mr. A invested Rs. 600000 in a mutual fund on 1st January 2025 and he also started
investment in an endowment insurance plan Rs. 100000 every year for the next 5 yearrs (1st
premium deposited on 1st January 2025). Compute the future value of all his investments
at the end of 5th year (31-Dec-2029). Assume the annual rate of return of 14%
9) XYZ Ltd. issues 10% Debentures of face value Rs. 1000 each and realizes Rs. 975 per
Debenture. The Debentures are redeemable after 8 years at a premium of 5%.
10) PQR Ltd. issues 11% Debentures of face value Rs. 500 each and realizes Rs. 480 per
Debenture. The Debentures are redeemable after 15 years at a premium of 15%.
11) ABC Ltd. issues 15% preference shares of face value Rs. 50 each at Rs. 48 per share. The
shares are repayable after 10 years at a premium of 8%.
12) MNO Ltd. issues 13% preference shares of face value Rs. 200 each at Rs. 190 per share. The
shares are repayable after 7 years at a premium of 12%.
13) A company has the following capital structure:
Equity Share Capital – Rs. 500 crores (Cost of Equity 15%)
Preference Share Capital – Rs. 200 crores (Rate of Dividend 11%)
10% Debentures – Rs. 250 crores (Tax rate 25%)
Project Loan – Rs. 50 crores (Interest Rate 11%)
Retained Earnings – Rs. 1000 crores
Compute the weighted average cost of capital
14) QWERTY Limited has the below capital structure:
Equity Share Capital Rs. 5000 lakhs
8% Debentures Rs. 2500 lakhs
Reserves & Surplus Rs. 2500 lakhs
Assume the risk free rate to be 7%, beta to be 1.5 and the market return to be 18%.
The applicable corporate tax rate is 20%
Compute the weighted average cost of capital
15) You are given the below project detail:
Initial Investment – Rs. 500 millions
Estimated life – 5 years
Salvage Value of Project – Rs. 100 millions
Depreciation Method – Straight Line
Years → 1 2 3 4 5
Estimated PAT (Rs. Millions) → 200 200 250 150 50
You are required to compute the NPV and IRR of the above project and comment
16) Explain the merits and demerits of below capital budgeting techniques (1) Payback Period
(2) Net Present Value (3) Internal Rate of Return
17) Explain various types of dividends
18) Briefly explain types of dividend policies adopted by firms
19) You are given the below information related to POPS Limited:
Average Inventory – Rs. 30 crores
Inventory Turnover – 3 times
Average Debtors – Rs. 25 crores
Debtors Turnover – 4 times
Average Creditors – Rs. 20 crores
Creditors Turnover – 5 times
Compute the operating and cash conversion cycle
20) RSM Limited is planning to rise Rs. 6000000 of capital and considering the below options:
Option-1: Issue equity shares of Rs. 10 each
Option-2: Issue equity shares for 50% of the required capital, remaining through 12%
debentures
Option-3: Issue equity shares for 50% of the required capital, remaining through 15%
preference shares
Company is expecting to earn Rs. 2500000 of EBIT next year and tax rate is 20%. Perform
EBIT-EPS analysis and determine the best option of capital structure
21) A company provides you the below details:
Equity capital of Rs. 5000000 (face value of Rs. 10 each)
9% Debt Capital Rs. 5000000
Quantity Produced & Sold 10000 units
Selling Price Rs. 500 per unit
Variable Cost Rs. 200 per unit
Fixed Operating Costs Rs. 1700000
Tax Rate 30%
Compute the below:
(a) Contribution (b) EBIT (c) EPS (d) ROE (e) Operating Leverage (f) Financial Leverage (g)
Combined Leverage
