MGT201 fall 2009

Q 1. What are the most appropriate uses of Debt? (Marks 3)



Q.2 Explain the following conditions
IRR < WACC
IRR > WACC > SML
IRR < SML
IRR< WACC < SML

Q.3 Zeeshan and co issued a 2 year based par value Rs.1000/- and coupon Rate of 10% pa (and annual coupon payments). Zeshaan and co pays and investment bank Rs. 50 per bond to stockholder and the market bond they decide to sell the Bond for Rs. 950( i.e at discount) at the end of the shield require rate of return is 16% based on the net income and industry standard the marginal corporate Tax Rate is 30% of Net income



Required (Marks 10)

Assuming that the 2 year bond represent the only form of capital, calculate the after – tax weighted average cost of capital (WACC) % for zeeshan and co





Q.4 A 100% Equity (un – levered) firm as total Assets of Rs. 50000 weighted average cost of capital for an un – levered firm (WACCU) is 35% and cost of debt for un – levered firm (r d u ) of 20% it then adds Rs. 20000 of debt financial Risk increases cost of debts (r d L) of leverd Firm to 18%

(Marks 5)

Required

What is levered firms Cost of equity (r e L)?
What will be the WACC L of levered Firm




Q.5 Find the Beta on a stock given that its expected Return is 16% the Risk free rate is 4% and the Expected return on the Market portfolio is 12% (Marks 5)