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7/29/2019 FM assignment 2.docxfm
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Assignment No:- 2
Financial Management
Introduction:- In this assignment we need to collect data of a company of past10 years and do certain calculations. I have selected EDELWEISS as my
company which is listed in NSC.
We need to find out the following things:-
EPS DPS BOOK VALUE PER SHARE AVERAGE MARKET VALUE PER SHARE
(Source of the company information:-money control.com)
YearEarnings Per
Share (Rs.)
Growth
Rate (%)
Dividend Per
Share (Rs.)
Growth
Rate (%)
Market value Per
Share(Rs.)
Growth
Rate (%)
2003 0.65 - 0.25 - 13.8 -
2004 7.85 1107.69 0.4 60.00 21.425 55.25
2005 16.97 116.18 0.5 25.00 37.75 76.20
2006 9.56 -43.67 0.65 30.00 55.55 47.15
2007 6.03 -36.92 0.25 -61.54 190.15 242.302008 3.84 -36.32 2 700.00 204.975 7.80
2009 3.52 -8.33 3 50.00 124.4 -39.31
2010 4.56 29.55 10 233.33 138.7 11.50
2011 0.78 -82.89 0.6 -94.00 93.25 -32.77
2012 0.91 16.67 0.6 0.00 57.875 -37.94
Year Dividend Gain (%) Capital Gain (%) Total Gain (%)Growth Rate
(%)
2003 - -
2004 2.90 55.25 58.15
2005 2.33 76.20 78.53 0.35
2006 1.72 47.15 48.87 -0.38
2007 0.45 242.30 242.75 3.97
2008 1.05 7.80 8.85 -0.96
2009 1.46 -39.31 -37.85 -5.28
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2010 8.04 11.50 19.53 -1.52
2011 0.43 -32.77 -32.34 -2.66
2012 0.64 -37.94 -37.29 0.15
PayoutRatio
Year Payout Ratio
2003 0.385
2004 0.051
2005 0.029
2006 0.068
2007 0.041
2008 0.521
2009 0.852
2010 2.193
2011 0.769
2012 0.659
This assignment is based on the concept of cost of capital.
Cost of capital :- Cost of capital represents the rate of return which the company
must pay to the suppliers of capital for use of their funds. It is the minimum rate of
return that a project must yield to keep the value of the enterprise intact. Its also
helps to decide whether the project is worth undertaking or not .
Dividend Growth Model
Ke=((Div0(1+g))/P0)+g
Particulars Growth Rates Cost of Equity
EPS 1.04 1.06
DPS 1.05 1.07
Market 1.17 1.20
Total 0.99 1.01
Cost of equity share capital under capital assets price method (capm):- CAPM is an
alternative method to measure the cost of equity other than the dividend method
which is directly based on risk consideration.
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Ke =Rf + B (Rm-Rf)
Rf 8.00%
Rm 10.50%
1.2
Ke 11.00%
Weighted average cost of capital:- It is the rate of return that is required to be
earned by the firm as to satisfy the needs of different investors. As it gives the
minimum rate of return on the assets of the firm it is calculated as weighted avg
instead of simple avg.
1 Ke=1.06
Sources of
Funds
Book
Value
Book Value of
Weights
Cost of
Capital
Wi*
Ki
Market
Value
Mkt Value
Weights
Wi*Ki
Equity 75.68 0.0203 1.0600 0.02
15
0.4399 0.0002 0.00019
5649
Debt (inRs. In
Cr.)
2382.6
1
0.6382 0.0226 0.01
44
2382.610
0
0.9998 0.02260
1477
Reserves and
Surplus
1274.9
5
0.3415 1.0600 0.36
20
Total 3733.2
4
0.39
79
2383.049
9
0.02279
7126
2 Ke = 1.07
Sources of
Funds
Book
Value
Book Value
of Weights
Cost of
Capital
Wi*Ki
(Book
Value)
Market
Value
Mkt Value
Weights
Wi*Ki
(Market
Value)
Equity 75.68 0.0203 1.07 0.022 0.4399 0.00018 0.000
Debt (inRs.
In Cr.)
2382.
61
0.6382 0.76 0.485 2382.6
100
1.000 0.760
Reserves
and Surplus
1274.
95
0.3415 1.06 0.362
Total 3733.24 0.869 2383.050 0.760
3 Ke = 1.20
Sources of
Funds
Book
Value
Book Value
of Weights
Cost of
Capital
Wi*Ki
(Book
Value)
Market
Value
Mkt Value
Weights
Wi*Ki
(Market
Value)
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Equity 75.68 0.020 1.200 0.024 0.4399 0.00018 0.00022
Debt (inRs.
In Cr.)
2382.
61
0.638 0.760 0.485 2382.6
100
1.000 0.760
Reserves
and Surplus
1274.
95
0.342 1.060 0.362
Total 3733.24
0.871 2383.050
0.760
4 Ke = 1.01
Sources of
Fund
Book
Value
Book Value
of Weights
Cost of
Capital
Wi*Ki
(Book
Value)
Market
Value
Mkt Value
Weights
Wi*Ki
(Market
Value)
Equity 75.68 0.020 1.010 0.020 0.4399 0.000 0.000
Debt (inRs.
In Cr.)
2382.
61
0.638 0.760 0.485 2382.6
100
1.000 0.760
Reservesand Surplus
1274.95
0.342 1.060 0.362
Total 3733.
24
0.868 2383.0
50
0.760
5 Ke = 11
Sources of
Funds
Book
Value
Book Value
of Weights
Cost of
Capital
Wi*Ki
(Book
Value)
Market
Value
Mkt Value
Weights
Wi*Ki
(Market
Value)
Equity 75.68 0.020 11.000 0.223 0.4399 0.000 0.002
Debt (inRs.In Cr.)
2382.61
0.638 0.760 0.485 2382.6100
1.000 0.760
Reserves
and Surplus
1274.
95
0.342 1.060 0.362
Total 3733.
24
1.070 2383.0
50
0.762
Conclusion and Analysis
The above calculation states that the cost of capital reduces with the increasing
types of sources of funds i.e. more debt reduces overall cost of capital for the
company. These helps the firm in creating a tax shield and reduce the interest
amount of the loan taken by banks and other sources.
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