Corporate Finance

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Corporate Finance

QUESTIONS

1. The current Earnings per Share (EPS) of the Hindustan Engineering Company is Rs 3.80. Analysts expect it to grow at an
   annual rate of 8 percent. What will be the EPS in 5 years time?


2. You have the option of a lump-sum today as against an annuity of Rs 3,000 for 8 years. How large will the lump-sum have
   to be, to make you indifferent between the options if current interest rate is 12 percent?


3. You know that the following liabilities must be satisfied:
   Year from now Liability (Rs in crore)
   12
   23
   34
   45

How much should be invested today to satisfy this stream? You can earn an annual interest rate of 11 percent on your

investments.

4. What is the implied growth rate, if:
   Production Target for 1997 = 5 million tons
   Current Production (for 1991) = 2 million tons


5. What annual percentage rate is equal to 12 percent compounded monthly?


6. Suppose you open a savings account with Rs 1,500. The account’s stated interest rate is 12 percent. Calculate the account’s
   balance after 2 years if interest is paid:
   (a) annually;
   (b) semi-annually; and
   (c) quarterly.


7. You need Rs 150,000 at the end of 15 years. You decide to make equal annual payments into a bank account. Current
   interest rate is 11 percent (compounded annually). The first payment is to be made at the end of the first year.
   (a) What must be year annual payment to meet your need?
   (b) How would your answer change if the payments are made at the beginning of the year?
   (c) Instead of making annual payments if you were to decide to make one lump-sum payment today, how big should the
   lump-sum be?


8. Your company has established a sinking fund to meet an obligation of Rs 8 lac, coming due in 10 years. If the fund can
   earn 10 percent a year, what annual contributions must be made to accumulate the amount?


9. Bank-A pays 13 percent interest compounded annually on deposits. Bank-B pays 12 percent compounded monthly. In
   which bank would you prefer to deposit your money?


10. Vindhyachala Financial Services Company offers loans at an annual rate of 10 percent. If the interest is compounded
    monthly, what is the effective rate?


11. An advertisement by Vijayashri Bank claims that your money will double in 6 years. What is the implied interest?


12. You have taken a 30-year loan for Rs 3 lac. The annual interest on the loan is 12 percent. Estimate your yearly payments.


13. Find the present value of the series. Discount rate = 10 percent.

Year Amount (Rs)

1–5 125,000

6–10 28,000

11–15 136,000

14. You are 55 years old and expect to work for 5 years more, saving Rs 1.25 lac a year. Appropriate interest rate = 10 percent.
    (a) If you wish to withdraw Rs 75,000 a year for the following 15 years, how much would you need in the bank 5 years
    from now?
    (b) What is its current worth?
    (c) If you already have Rs 2 lac in your bank account, what would be your bank balance when you retire?