Where Knowledge Meets Corporate Requirement STRATEGIC FINANCIAL MANAGEMENT | 8886435913 | FB: NISM Praveen
SFM PRAVEEN CLASSES - 8886435913 Facebook ID: SFM Praveen Hyd Website: sfmpraveen.com 1 CONTENTS SECTION – B - REPLACEMENT SECTION Replacement of Answers of Practice Manual, Edition January 2015 ......................... B.1 – B.11 Corrections in/ Replacement of Answers ofStudy Module, Edition January 2015 ..... B.12 – B.17 SECTION – C - CORRECTION SECTION Corrections in Practice Manual, Edition January 2015 ............................................... C.1 – C.4 Corrections in Study Module, Edition January 2015 ................................................... C.5 – C.12
SFM PRAVEEN CLASSES - 8886435913 Facebook ID: SFM Praveen Hyd Website: sfmpraveen.com 2 About the Book, This book has been prepared with around 300 sums along with answers majorly taken from foreign authors and other books from where previous exam problems were taken. This material is mainly helpful for those who attended my previous batches where these sums were not covered in those batch materials. For the current and upcoming batches, these sums including 580 making 880 sums will be done in class. Thanks to Chandra shekhar Gudipati (Chandu Nani) onbehalf of students for helping in preparing this work book Happy learning Yours, SFM Praveen Visit sfmpraveen.com for online registration & work book free download
SFM PRAVEEN CLASSES - 8886435913 Facebook ID: SFM Praveen Hyd Website: sfmpraveen.com 3 CAPITAL BUDGETING PROBLEMS ProblemNo.1 RTP TMC is a venture capital financier. It received a proposal for financing requiring an investment of Rs.45 cr which returns Rs.600 cr after 6 years if succeeds. However, it may be possible that the project may fail at any time during the six years. The following table provides the estimates of probabilities of the failure of the projects. Year 1 2 3 4 5 6 Probability of Failure 0.28 0.25 0.22 0.18 0.18 0.10 In the above table the probability that the project fails in the second year is given that it has survived throughout year 1, similarly for year 2 and so forth. TMC is considering an equity investment in the project. The beta of this type of project is 7. The market return and risk free rate of return are 8% and 6% respectively. You are required to compute the expected NPV of the venture capital project and advice the TMC. Problem No.2 Trouble Free Solutions (TFS) is an authorized service center of a reputed domestic air conditioner manufacturing company. All complaints/ service related matters of Air conditioner are attended by this service center. The service center employs a large number of mechanics, each of whom is provided with a motor bike to attend the complaints. Each mechanic travels approximately 40000 kms per annum. TFS decides to continue its present policy of always buying a new bike for its mechanics but wonders whether the present policy of replacing the bike every three year is optimal or not. It is of believe that as new models are entering into market on yearly basis, it wishes to consider whether a replacement of either one year or two years would be better option than present three year period. The fleet of bike is due for replacement shortly in near future. Cost of capital is
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