Previous Year Questions

1. A company has issued 10 percent perpetual debt of Rs. 1 lac at 5 percent premium. If tax rate is 30 per cent, then the cost of debt will be:
   (a) 10 per cent
   (b) 15 per cent
   (c) 6.66 per cent
   (d) 8.21 per cent
2. A company raises Rs.1,00,000 by issue of 1,000, 10% debentures of Rs.100 each at a discount of 2% redeemable after 10 years. If the corporate tax rate is 40%, what would be the cost of capital?
   1. 6.8%
   2. 5.98%
   3. 6.18%
   4. 5.5%
3. A company issues 10% irredeemable preference shares. The face value per share is Rs. 100, but the issue price is Rs. 95. What is the cost of preference share ?
   1. 10.63%
   2. 10.73%
   3. 10.83%
   4. 10.53%
4. The current market price of a company’s share is Rs. 90 and the expected dividend per share next year is Rs.4.5. If the dividend is expected to grow at a constant rate of 8%, the shareholder’s required rate of return will be
   1. 8%
   2. 5%
   3. 20%
   4. 13%
5. Indicate the cost of equity capital, based on capital asset pricing model, with the following information:
   Beta coefficient – 1.40
   Risk free rate of interest – 9%
   Expected Rate of return on equity in the market – 16%
   (a) 9.8%
   (b) 18%
   (c) 18.8%
   (d) 16%
6. On the basis of the following information, what will be the EBIT corresponding to financial indifference point?
   Total Capital outlay = Rs. 60,00,000
   Financing Plans
   (i) 100% Equity @ Rs. 10 – per share
   (ii) Debt equity ratio 2 : 1
   Rate of interest 18% p.a., corporate tax rate 40%
   (a) Rs. 10,00,000
   (b) Rs. 12,00,000
   (c) Rs. 10,80,000
   (d) Rs. 12,80,000