|Total No. of Questions— 6]||[Total No. of Printed Pages—3|
|Time Allowed : 3 Hours||Maximum Marks : 100|
|Answers to questions are to be given only in English except in the cases of candidates who have opted for Hindi medium. If a candidate who has not opted for Hindi medium, answers in Hindi, his answers in Hindi will not be valued.|
|Question No. 1 is compulsory.|
Answer any four Questions from the rest. Figures in the margin indicate marks allotted to each question.
|Working notes should form part of the answer.|
|1.||(a)|| XYZ Ltd. is considering a project for which the following estimates are available: |
Discount rate 10% p.a.
You are required to measure the sensitivity of the project in relation to each of the following parameters.
(a) Sales Price/unit
(b) Unit cost
(c) Sales volume
(d) Initial qutlay and
(e) Project lifetime
Taxation may be ignored.
|(b)||Write short notes on the role of Financial Advisor in a Public Sector undertaking.||4||(0)|
|2.||(a)|| XYZ Ltd. a US firm will need £ 3,00,000 in 180 days. In this connection, the following information is available: |
Spot rate 1 £ = $ 2.00
180 day forward rate of £ as of today = $1.96
Interest rates are as follows:
A call option on £ that expires in 180 days has an exercise price of $ 1.97 and a premium of $ 0.04.
XYZ Ltd. has forecast the spot rates 180 days hence as below:
Which of the following strategies would be most preferable to XYZ Ltd.?
(a) a forward contract
(b) a money market hedge
(c) an option contract
(d) no hedging
Show calculations in each case.
|(b)|| Expected returns on two stocks for particular market returns are given in the following table: |
You are required to calculate:
|(c)||Explain briefly the advantages of investing in mutual funds.||4||(0)|
|3.||(a)|| AFC Ltd. wishes to acquire BCD Ltd. The shares issued by the two companies are 10,00,000 and 5,00,000 respectively. |
|(b)|| AMK Ltd. an India based company has subsidiaries in U.S. and UK. |
Forecasts of surplus funds for the next 30 days from two subsidiaries are as below:
Following exchange rate informations are obtained:
Annual borrowing/deposit rates (simple) are available.
The Indian operation is forecasting a cash deficit of Rs. 500 million.
It is assumed that interest rates are based on a year of 360 days.
|(c)|| A money market instrument with face value of Rs. 100 and discount yield of 6% will mature in 45 days. You are required to calculate: |
|4.||(a)|| ABC Co. is considering a new sales strategy that will be valid for the next 4 years. They want to know the value of the strategy. Following information relating to the year which has just ended, is available: |
If it adopts the new strategy, sales will grow at the rate of 20% per year for three years. The gross margin ratio, Assets turnover ratio, the Capital structure and the income tax tate will remain unchanged.
Depreciation would be at 10% of net fixed assets at the beginning of the year.
The Company’s target rate of return is 15%.
Determine the incremental value due to adoption of the strategy.
|(b)||Discuss the major sources available to an Indian Corporate for raising foreign currency finances.||8||(0)|
|(c)||(i)||What are Stock futures?||4||(0)|
|(ii)||What are the opportunities offered by Stock futures?||(0)|
|(iii)||How are Stock futures settled?||(0)|
|5.||(a)|| A Company is planning to acquire a machine costing Rs. 5,00,000. Effective life of the machine is 5 years. The Company is considering two options. One is to purchase the machine by lease and the other is to borrow Rs. 5,00,000 from its bankers at 10% interest p.a. The principal amount of loan will be paid in 5 equal installments to be paid annually. The machine will be sold at Rs. 50,000 at the end of 5th year. Following further informations are given: |
Compute the lease rentals payable which will make the firm indifferent to the loan option.
|(b)|| The following informations are supplied to you: |
|6.||(a)|| The historical rates of return of two securities over the past ten years are given. Calculate the Covariance and the Correlation coefficient of the two securities: |
|(b)||Write brief notes on Leveraged Buyouts (LBOs).||4||(0)|
|(c)||Find the Current market price of a bond having face value Rs. 1,00,000 redeemable after 6 year maturity with YTM at 16% payable annually and duration 4.3202 years. Given 1.166 = 2.4364.||6||(0)|