Corporate Finance June 2026 solved assignments
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CORPORATE FINANCE /JUNE 2026 EXAMINATION
Q1 A mid-sized Indian manufacturing firm is experiencing declining profitability despite steady revenue growth. The CFO attributes this to escalating operational costs and inefficient asset utilization, compounded by a recent spike in short-term liabilities. The company is considering introducing automated inventory management and tighter receivables policies, but also faces pressure from suppliers demanding shorter payment cycles. The management team must ensure operational efficiency while maintaining liquidity, without compromising on the firm’s ongoing investment in quality improvements and expanding production capacity.Drawing on working capital management concepts, how should the firm apply cash flow forecasting, inventory control, and receivables management strategies to optimize liquidity and operational efficiency in this scenario? What specific actions would you recommend to balance short-term obligations and strategic growth initiatives?
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Q2 (A) An Indian manufacturing firm is evaluating the purchase of a machine costing Rs.24,00,000 with the following expected operational data for 5 years: depreciation is calculated using the straight-line method over 5 years with zero salvage value. The machine will generate incremental cash inflows as per the table below. However, it requires an additional working capital investment of Rs.4,50,000 at the end of Year 1, recoverable fully at the end of Year 5. The firm’s cost of capital is 10% p.a. and corporate tax rate is 30%. Using the time value of money, determine whether the investment should be undertaken by calculating the Net Present Value (NPV) of all cash flows (including working capital impacts and tax shields on depreciation). Table: Year | Incremental Cash Inflows (before tax & depreciation) (Rs.): 1 | 7,00,000; 2 | 8,00,000; 3 | 9,80,000; 4 | 9,00,000; 5 | 8,50,000. Show all intermediate calculations in your answer.
Q2 (B) A firm has the following market values and component costs:
| Component | Market Value (Rs. lakh) | Cost (Before Taxes) |
| Equity Share Capital | Rs. 1050 | 15% |
| Preference Share Capital | Rs. 150 | 10% |
Corporate tax rate is 25%. The company is considering two alternative financing scenarios for a major expansion: Scenario A – increase secured debt by Rs. 250 lakh replacing an equal amount of equity; Scenario B – raise preference share capital by Rs. 100 lakh, reducing unsecured debt and equity equally. Assuming the respective costs remain unchanged and all weights are on the new market value proportions, calculate the WACC for each scenario and determine which scenario yields a lower WACC. Show all steps including tax adjustments and market value re-weighting.
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