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Answer of Question no.1.
 Particulars Per Unit Total Sales Less: Variable Cost 20 15 4000000 3000000 Contribution Less: Fixed Cost 5 1000000 300000 Earning Before Interest and Tax (EBIT) Less: Interest (500000 x 10%) 700000 50000 Earning Before Tax (EBT) 650000

a)      Degree of Operating Leverage = Contribution / EBIT = 1000000 / 700000 = 1.429 : 1

b)      Degree of Financial Leverage = EBIT / EBT = 700000 / 650000 = 1.077 : 1

c)       Degree of Combined Leverage = Contribution / EBT = 1000000 / 650000   = 1.538 : 1

Answer of Question no. 2 (a).
Plz follow your material. This method is clearly explained.

Answer of Question no. 2(b).
Given,
Rate of Dividend (D) = 6.75 / 100 = 6.75%
Required rate of return (r) = 9%
Face value of Preference share (FV) = 100
Now,
Value of preference shares = (D * FV) / r = (6.75 * 100) / 9 = Rs. 75

Answer of Question no. 4.
Net Income Approach (NI Approach):
The approach is suggested by Durand. According to it, a firm can increase its value or lower the overall cost of capital by increasing the proportion of debt in the capital structure. In other words, if the degree of financial leverage increases, the weighted average cost of capital would decline with every increase in the debt content in total funds employed, while the value of the firm will increase. Reverse would happen in a converse situation.
Chart 1 gives a graphical explanation of the theory. Vertical axis measures cost and horizontal axis measures leverage, ie., debt / Equity.
Chart:1 Net Income Theory

Leverage (D/S)

It is based on the following assumptions :
i) There are no corporate taxes.
ii) The cost of debt is less than cost of equity or equity capitalisation rate.
iii) The use of debt content does not change the risk perception of investors as a result of both the Kd (Debt capitalisation rate) and Ke (equity capitalisation rate) remains constant.
The value of the firm on the basis of Net Income Approach may be ascertained as follows :
V = S + D
Where,
V = Value of the firm
S = Market value of equity
D = Market value of debt
And,
S = NI/Ke
Where,
S = Market value of equity
NI = Earnings available for equity shareholders
Ke = Equity Capitalisation rate
Under, NI approach, the value of a firm will be maximum at a point where weighted average cost of capital is minimum. Thus, the theory suggests total or maximum possible debt financing for minimising cost of capital.

Net Operating Income Approach (NOI) :
This approach is also suggested by Durand, according to it, the market value of the firm is not affected by the capital structure changes. The market value of the firm is ascertained by capitalising the net  operating income at the overall cost of capital, which is constant.
In Chart 2 NOIT is represented.

The market value of the firm is determined as :
V = EBIT/Overall cost of capital
Where,
V = Market value of the firm
EBIT = Earnings before interest and tax
Overall cost of capital = EBIT/Market Value of the firm
And,
S = V - D
Where,
S = Value of equity
D = Market value of debt
V = Market value of firm
And,
Cost of equity = EBIT/(V - D)
Where,
V = Market value of the firm
EBIT = Earnings before interest and tax
D = Market value of debt
It is based on the following assumptions :
i) The overall cost of capital remains constant for all degree of debt equity mix.
ii) The market capitalises value of the firm as a whole. Thus, the split between debt and equity is not important.
iii) The use of less costly debt funds increases the risk of shareholders. This causes the equity capialisation rate to increase. Thus, the advantage of debt is set off exactly by increase in equity capitalisation rate.
iv) There are no corporate taxes.
v) The cost of debt is constant.
Under, NOI approach since overall cost of capital is constant, thus, there is no optimal capital structure rather every capital structure is as good as any other and so every capital structure is optimal.

Answer of Question no. 5(a).
Calculation of Net Present Value (NPV):
 Year Cash flows (Lakhs) Discounting factor @ 18% Present value of Cash Inflow 1. 2. 3. 4. 5. 40,00,000 45,00,000 60,00,000 60,00,000 75,00,000 0.8475 0.7182 0.6086 0.5158 0.4371 33,90,000 32,31,900 36,51,600 30,94,800 32,78,250

A) Present Value of Cash Inflow (Total)                 =             1,66,46,550
B) Less: Cost of Investment                                         =             2, 00,000
Net Present Value (A – B)                                            =           1,64,46,550

Answer of Question no. 5(b).
Present value of cash to be received after 3 years(V) = A / (1 + i)n
Here, A (Amount to be received after 3 years) = 15,00,000
I (Rate of interest ) = 0.0925
N (No of years) = 3
V (Present value) = ?
Now,
V = 15,00,000 / (1.0925)3
V = 15,00,000 / 1.3040
V = 11,50,307