cf_finest quality paper ltd
Post on 03-Jun-2018
220 Views
Preview:
TRANSCRIPT
-
8/13/2019 Cf_finest Quality Paper Ltd
1/12
FINEST QUALITY PAPERLTD
COMPANY ESTABLISHMENT
ANALYSIS
Presented To: Presented By:Prof. Nandita Mishra Sharvangi (BM-013075)
Shubham Verma (BM-013081)
-
8/13/2019 Cf_finest Quality Paper Ltd
2/12
COMPANYS KEY FEATURES
AIM- To provide finest quality of products at
cheap rates in comparison with its
competitors.
Work done is Ethical in nature. Contribution towards the society:
For every 4 notebooks the customer buys,
company contributes Re.1 to its rural
development initiative.
-
8/13/2019 Cf_finest Quality Paper Ltd
3/12
EXPENSES REQUIRED FOR THE
ESTABLISHMENT OF THECOMPANY
Expenses Amount (in Rupees)
Establishment of New Plant 3 Cr.
Investment in Machine and Tools 1.6 Cr.
Fixed Costs 20 lakhs
Other Expenses 20 lakhs
Total Investments 5 Cr.
-
8/13/2019 Cf_finest Quality Paper Ltd
4/12
OPTIONS AVAILABLE UNDER
DIFFERENT PLANS
Company issues
EQUITY SHARES DEBENTURES PREFERENCE
SHARES
EBIT
Option 1 50,00,000 @ Rs. 10
each
- - 60,00,000
Option 2 25,00,000 @ Rs. 10
each
2,50,000 of Rs.
100 @ 12%
- 60,00,000
Option 3 25,00,000 @ Rs. 10each
- 2,50,000 of Rs. 100@ 10%
60,00,000
-
8/13/2019 Cf_finest Quality Paper Ltd
5/12
CALCULATION OF EPS
When only equity shares are issued: both equity and debentures are
issued: equity and preference shares are issued.
Particulars 1
EBIT 60,00,000
(-) Interest -EBT 60,00,000
(-) Tax @ 30% 18,00,000
EAT 42,00,000
(-) PD -
EAE
No. of equity shares 50,00,000
EPS .84
2
60,00,000
30,00,00030,00,000
9,00,000
21,00,000
-
25,00,000
.84
3
60,00,000
-60,00,000
18,00,000
42,00,000
25,00,000
17,00,000
25,00,000
.68
-
8/13/2019 Cf_finest Quality Paper Ltd
6/12
Determining COST OF CAPITAL
Individual Cost of Capital:
(a) on equity Shares
Ke= Dividend * 100 = (.5/10) *100 = 5 %
Market Price (assumed dividend .5 %)
(b) on Prefeernce Shares
Kp= Dividend * 100 = 10%
Net Price
(c) on Debentures
Kd= I(1-t) *100 = 8.4%
Net Price
-
8/13/2019 Cf_finest Quality Paper Ltd
7/12
Weighted Average Cost of Capital:
Source Amount (Rs.) Weight Cost WACC
Equity Shares 5Cr. 1 5% 5%
Total 5 Cr. 5%
-
8/13/2019 Cf_finest Quality Paper Ltd
8/12
Weighted Average Cost of Capital:
Source Amount (Rs.) Weight Cost WACC
Equity Shares 2,50,00,000 0.5 5% 2.5%
Debentures 2,50,00,000 0.5 8.41% 4.2%
Total 5 Cr. 6.7%
-
8/13/2019 Cf_finest Quality Paper Ltd
9/12
Weighted Average Cost of Capital:
Source Amount (Rs.) Weight Cost WACC
Equity Shares 2,50,00,000 0.5 5% 2.5%
Preference Shares 2,50,00,000 0.5 10% 5%
Total 5 Cr. 7.5%
-
8/13/2019 Cf_finest Quality Paper Ltd
10/12
LEVERAGES
(a)OPERATING LEVERAGE
= Contribution
EBIT
Contribution = Sales- Variable CostSales(Expected)=1cr.
Variable=20,00,000 Fixed cost =20,00,000
(b)FINANCIAL LEVERAGE
= EBIT
EBT
(c)COMBINED LEVERAGE= O.L. * F.L.
-
8/13/2019 Cf_finest Quality Paper Ltd
11/12
Operating leverage =1.33
Financial leverage, In case of Equity shares=1
In case of Equity shares and debentures=2
In case of Equity shares and PreferenceShares=1
So, Combined leverage, In case of Equity
Shares=1.33
In case of Equity shares and debentures=2.66 In case of Equity shares and Preference
Shares=1.33
-
8/13/2019 Cf_finest Quality Paper Ltd
12/12
INTERPRETATION
As seen, EPS is same in case of equity shares, and equity and
debentures but minimum in case of preference shares so both
option 1 and 2 are good.
WACC is less in option 1 in comparison of option 2 andoption 3
So, option 1 is an ideal condition.
As from all leverages point of view combined leverage is
same in option 1 and option 3 , so both the options are ideal.
top related