Financial Management

AEREN FOUNDATION’S Maharashtra Govt. Reg. No.: F-11724

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Financial Management

1 (a) R f = 7% R m = 16%

| | |Prop |Beta | CAPM = Ke = |Expected Return |

| | | | |Rf+B(Rm-Rf) | |

| | | | |=7%+0.9(16%-7%) | |

|A |12,00,000 |0.727 |0.9 |15.10% |10.98 |

|B |3,50,000 |0.212 |1.5 |20.5% |4.346 |

|C |1,00000 |0.061 |1.0 |16.00% |.976 |

| |16,50,000 |1.000 | | | |

Return of equity ( CAPM) = Rf+B* (Rm-Rf)

=7%+0.9(16-7%)

B) Given :

|Share |Selling Price |Expected Dividend |Expected Market Price |

|A |Rs 60 |Rs. 4 Per Share |Rs 70 |

( a ) Rate of return on investment in shares

R = [ D1+ (P1-P0) ] / P0 = (Rs 4 + (70-60)/60

= 4+10/60

= 14/60 = 0.233 = 23.33%

( b) Dividend yield = D1/Po = Rs 4/60

= 0.066 = 6.6%

( c) Capital Gain Yield = (P1-P0)/P0 = (70-60)/60

= 10/60 = 0.166...