FM assignment 2.docxfm

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.

Documents

FM assignment 2.docxfm