CORPORATE FINANCE
Part A 
Compulsory 
25 Marks 
Part B 
Attempt 3 out of 4 
75 Marks 
PART A:
Question 1 is compulsory
a. Elaborate
on the significance of weighted average cost of capital (WACC) in Corporate
Finance. Why is WACC used as hurdle rate for investment appraisal projects? (8
marks)
b. Consider
the following financial statements of NSE India listed Bharti Airtel Ltd. (NSE
Ticker: BHARTIARTL) for FY201819.
INR, Cr 

Profit & Loss Statement 
FY2019 
Total Revenue 
49,858.70 
Purchase Of StockIn Trade 
0.00 
Operating And Direct Expenses 
29,245.10 
Employee Benefit Expenses 
1,471.00 
Finance Costs 
5,473.30 
Depreciation And Amortisation Expenses 
15,087.60 
Other Expenses 
6,590.30 
Total Expenses 
57,867.30 
Exceptional Items 
2,804.90 
Profit/Loss Before Tax 
(5,203.70) 
Total Tax Expenses 
3,374.70 
Profit/Loss For The Period 
(1,829.00) 
INR, Cr 
INR, Cr 

Consolidated Balance Sheet 
FY2019 
Consolidated Balance Sheet 
FY2019 

Noncurrent assets 

Equity 


Intangible assets 
75,188.50 
Shareholders' funds 
98,359 

Tangible Assets 
61,843 
Noncontrolling interests 
0 

Other noncurrent assets 
65,134 
Total Equity 
98,359 

Total Noncurrent assets 
202,165 
Noncurrent liabilities 


Current assets 

Longterm borrowings 
58,649 

Inventory 
1 
Other noncurrent liabilities 
5,214 

Trade and other receivables 
3,849 
Total Noncurrent liabilities 
63,863 

Cash and cash equivalents 
219 
Current liabilities 


Other current assets 
16451 
Shortterm borrowings 
25,141 

Total Current assets 
20,520 
Trade and other payables 
19,169 

Other noncurrent liabilities 
16,154 

Total Current liabilities 
60,463 
Using the information
provided in the financial statements,
i. Compute
the cost of debt, Kd. (2 marks)
ii. Compute
the cost of equity, Ke if the beta of the company is 0.91, Rf in India is 6%
and market risk premium in India is 4%. (2 marks)
iii. Compute
the capital structure of the company. (2 marks)
iv. Compute
the overall WACC of the business. Assume tax rate as 25%. (4 marks)
v. What
can you comment about the health of the business using your computations? If
say the average industry WACC is 10%, how would you interpret this company’s
WACC based on your computation? (7 marks)
PART B: Attempt
any 3 out of the following 4 questions
Q2. For Bharti Airtel
Ltd. (financial data mentioned above), also compute the following market
multiples.
i. P/Book
ratio (3 marks)
ii. P/E
ratio (3 marks)
iii. EV/EBITDA
(3 marks)
iv. EV/Sales
(3 marks)
Additional data for
computing multiples:
Share price on 29 Mar‘19 
₹305.6 per share 
No. of shares outstanding 
545.325 Cr 
Also answer the
following.
v. Why
do we use market multiples for business valuation? How are they different from
accounting ratios you have studied in a previous subject? (5 marks)
vi. Would
P/E ratio be a meaningful estimate of the market multiple in case of Bharti
Airtel? Why/why not? (4 marks)
vii. What
is the significance of EV/EBITDA multiple for company valuation? (4 marks)
Q3. Compute the
Enterprise Value of a business using the discounted cash flow (DCF) model with
the following financials.
a. Forecast
period for projecting the financials: 5 years with FY2019 being the current
year.
b. Revenues
for FY2019: ₹50m, growing at 10% p.a. for the forecast period.
c. Expenses
to be taken as 50% of revenues.
d. Company
has ₹80m of fixed assets which depreciate at 25% p.a. Assume depreciation to
remain the same during the forecast period.
e. Change
in Working capital during FY2019 is ₹10m. Additional working capital required
during forecast period for each year to be same as FY2019 working capital.
f. WACC
for the business: 15%, terminal growth rate: 3% p.a.
g. Tax
rate at 30%.
Compute the following
(i to iii):
i. Operating
cash flows for the forecast period. (7 marks)
ii. Terminal
cash flows for the forecast period. (5 marks)
iii. Enterprise
Value (EV) of the business using the DCF model. (8 marks)
iv. What
does the EV that you have computed above represent? How would a finance manager
interpret this value of EV if it is a case of valuing a business for a takeover
by another business? (5 marks)
Q4. A 10year
Government of India bond (GSec) with Face Value of ₹1000 was issued at a
coupon of 6.5%, paid semiannually. The bond has been trading in the secondary
market and seven years are left till maturity.
i. Compute
the price of the bond if the current yieldtomaturity (YTM) of the bond is
6%. (3 marks)
ii. Compute
the price of the bond if the current yieldtomaturity (YTM) of the bond is
7%. (3 marks)
iii. Compute
the price of the bond if the current yieldtomaturity (YTM) of the bond is
6.5%. (3 marks)
iv. Compute
the price of the bond in the above three cases if only one year was left till
maturity. (4 marks)
v. What
would be the price of the bond right before the final coupon payment? (2
marks)
vi. What
would be the price of the bond right after the final coupon payment? (2
marks)
vii. Draw
the graph of the Bond Yields v. Price of the bond based on the above
information. What do you observe about relation between Bond Yields and Price
of the bond? Analyze the results you have obtained. (8 marks)
Q5. Explain the
following concepts as they relate to corporate finance (up to 1000 words each,
appropriate referencing required):
i. Explain
the three forms of efficient markets as stated in the Efficient market
hypothesis (EMH). What type of investment strategies would work best if the
markets are actually efficient? (15 marks)
ii. Explain
with suitable examples from the business world, the role of Corporate
Governance in efficient working of a business. You may take reference from agency
theory in drawing up your analysis. (10 marks)
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