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1. Corporate Finance
NMIMS April 2018
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Q1: Calculate the degree of operating
leverage and degree of financial
leverage for the following firms:
Firms A B
Sales (Rs.)
Variable cost p.u
Fixed cost (Rs.)
Output (units)
Interest
3,60,000
20
72,000
6,000
40,000
7,50,000
150
1,40,000
1,500
80,000

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Q2. A Project costs Rs 60,000 and is expected to generate
cash inflows as:
Calculate the Net Present Value of the project if the cost of capital is 10%. (10
Marks)
Year Cash inflows(Rs)
1 10,000
2 12,000
3 15,000
4 18,000
5 20,000
6 22,000

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Q3. Solve the following:
a) A company earns 5 per share. The cost of capital is 10%, the rate of return
on investment is 14% and the dividend payout ratio is 25%. Calculate the value
of each share by using Walter’s Model. (5 Marks)
b) XYZ Limited has a paid-up share capital of Rs. 10 lakhs of Rs. 10 each. The
company has a dividend payout rate of 10%. Annual growth rate is expected to
be 4%. The capitalisation rate is 20%. Calculate the value of the share of XYZ
based on Gordon’s Model. (5 Marks)