NMIMS Assignment Strategic Financial Management Net Present

Strategic Financial Management

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Q1. Oxford Corporation is evaluating a new project that requires an initial investment of INR 15,00,000. The project is expected to generate cash flows over the next five years, but there is considerable risk surrounding these cash flows due to market volatility. Based on the company's analysis, the following information is available:
The initial investment is INR 15,00,000
The expected cash flows from the project for each year are as follows:
Year 1: INR 4,00,000
Year 2: INR 5,00,000
Year 3: INR 6,00,000
Year 4: INR 7,00,000
Year 5: INR 8,00,000
The discount rate for the project is 10% and the Risk adjusted discount rate is 20%
1. Determine the Net Present Value (NPV) using the Risk adjusted discount rate.
2. Can the project be accepted, if the risk adjusted discount rate is increased to 25%.

Q2. The board of directors of Varun Limited are deliberating over its dividend policy. As a financial analyst, you've been tasked with providing recommendations regarding dividend policy that align with the company's goals and objectives. Considering the various factors influencing dividend policy decisions, analyze and provide recommendations for Varun Limited s dividend policy.

Q3a. Digital Gadgets Ltd pays INR 10 as annual preference dividend and has the required rate of return as 12%. Compute the market price of the preference shares of Digital Gadgets Ltd? Will you buy this share if it is currently selling at INR 80 per share?

Q3b. Call Option on stock of Arvind Ltd. having expiration date of 31 Dec 2024 at a Strike price (K) of Rs.2500 is available at an option premium of Rs.200. Compute the profit/loss when the spot price is INR 2800 on 31 Dec 2024.

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