**32**answerable questions with

**0**answered.

F–18(MFS)Revised Syllabus | |

Time Allowed : 3 Hours | Full Marks : 100 |

The figures in the margin on the right side indicate full marks. |

Answer Question No. 1 (carrying 20 marks) which is compulsory andany five (each carrying 16 marks) from the rest. |

Please answer all bits of a question at one place.Working notes should form part of the answer. |

Marks |

1. | (a) | In each of the cases given below, one out of four answers is correct. Indicate the correct answer(=1 mark) and give your workings/reasons briefly in support of your answer (=1 mark): | 2x5 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||

(i) | X purchased a six month call option on A Ltd.’s share with an exercise price of Rs.95. The current market price is Rs.100. The continuously compounded risk free interest is 10% p.a. What will be the present value of the call option, if the share price moves to Rs.90 or to Rs.108. (Assuming the investors are indifferent to risk.) Give your answer adopting the risk neutral approach. [Given :PVIF(10%, 0.5 year) = 0.9524]
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(ii) | The share price of TIL Ltd., an oil company is Rs.800. It is expected to yield the equivalent of Rs.960 after one year. Due to uncertainty about the quantum of oil available at the drilling site, the standard deviation of the return is σ = 40%. The risk free rate is 8% and the expected return on market portfolio is 16%. If the standard deviation of market portfolio is 20%, the expected rate of return of the share predicted by the Capital Market Line (CML) will exceed the actual expected rate of return by
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(iii) | The spot and 6 month forward rates between US $ and Re. are (Re./$ ) a. Rs.40.9542 – 41.1255 : Spot b. Rs.41.8550 – 41.9650 : 6 month forward What is the annualised forward premium with respect to Ask Price?
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(iv) | The net profit margin for A Ltd., is 10%. The total asset turnover ratio and debt–equity ratio are same which is 1.5. The company maintains 40% retentions ratio. The sustainable growth rate by using internal equity will be (to the nearest whole number)
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(v) | The following data is available for the security of A Ltd.
Is the security correctly priced? Where does it lie on the Security Market Line (SML)?
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(b) | Choose the most appropriate one from the stated options and write it down(only indicate A, B, C, D as you think correct): | 1x10 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||

(i) | In ROE analysis, if the total leverage ratio is falling and the ratio of PBT to EBIT is constant, it can be interpreted as a sign of
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(ii) | AS – 26 does not apply to which of the following?
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(iii) | The slope of the CAPM line is also referred to as the
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(iv) | An option to buy a stated number of shares of stock at a specified price is called
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(v) | Du Pont chart is the decomposition of
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(vi) | NDA Co. acquired 100% of Induga Corpn. prior to 2009. During 2009,the individual companies included in their financial statements the following:
What amount should be reported as related –party disclosures (AS –18) in the noes to NDA 2009 consolidated financial statements?
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(vii) | The IRR of the following series of cash flows: Investment Rs.600 now, post tax inflows of Rs.500 at the end of year 1 and an outflow of Rs.100 at the end of year 2 is
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(viii) | The beta of X Ltd. is 4. The growth rate of dividend and earning is 8%. The last dividend paid was Rs.4 per share. Return on government security is 10%. Return on market portfolio is 15%. The current market price per share of X Ltd. is Rs.36. The equilibrium price per share of X Ltd. is
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(ix) | If the trade credit offered were 2/15 net 45, the customers in effect pay interest at
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(x) | Collection float means
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2. | The Balance Sheet of Beta Ltd. at 31^{st} March 2007 and 31^{st} March 2008 were as follows:
The Profit and Loss Account for the year ended 31.3.2008 was:
The relevant price indices are:
Closing Stock of 31.3.08 was acquired during whole of 2007–08 and Opening Stock during 2006–07. Required: Assuming that the ‘Value to the Business’ of the assets is given by the price indices above, prepare the accounts on a current cost basis showing current cost adjustment for the year ended 31
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3. | (a) | You are given the following information of A Ltd. which sold off a geographical segment in the year 2007–08;
You are required to report the information in the Income Statement for the year ended 31 | 6 | (0) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||

(b) | A company operating in a country having the dollar as its unit of currency has today invoiced sales to MKC Ltd., an Indian company, the payment being due three months from the date of invoice. The invoice amount is $ 27,500 an at the spot rate of $ 0.025 per Re.1 is equivalent to Rs.11,00,000. It is anticipated that the dollar will get stronger by 5% over the three month period and in order to protect the remittances, the importer proposes to take appropriate action through foreign exchange market. Three month forward rate is quoted as $% 0.0248 per Re.1 Calculate the expected loss and show how it can be hedged by forward contract. | 10 | (0) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||

4. | A Ltd. has approached its bankers – National Bank Ltd. for enhancement of Working Capital limits from Rs.6 lakhs to Rs.10 lakhs. The company has Rs.5 lakhs outstanding at the year end. The Company has provided National Bank with the following:
Projections for 2010– 11:
The company intends to increase the credit limit to the extent necessary to support its operations. Requirements:
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5. | (a) | Distinguish between Value Added (VA) and Economic Value Added (EVA). | 4 | (0) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||

(b) | The Profit and Loss Account of Growth Ltd. is shown below:
Prepare a statement of Value Added indicating the allocation of Value Added
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6. | (a) | The current share price is Rs.100 There is a 0.7 probability that the share price would increase in value by 30% and 0.3 probability that the same price would decrease in value by 20% at the expiration date (six months hence). The exercise price is Rs.100.
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(b) | What would be price of a call option as per Put–Call parity if value of a put is Rs.5, exercise price Rs.100, current price Rs.100, rate of interest 6% p.a., time period 2 months. (Given e^{0.01} = 1.01) | 4 | (0) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||

7. | (a) | A company is faced with the problem of choosing between two mutually exclusive projects. Project A requires a cash outlay of Rs.1,00,000 and cash running expenses of Rs.35,000 per year. On the other hand, Project B will cost Rs.1,50,000 and require cash running expenses of Rs.20,000 per year. Both the machines have a eight – year life. Project A has a salvage value of Rs.4,000 and Project B has a salvage value of Rs.14,000. The company’s tax rate is 50% and it has a 10% required rate of return. Assuming depreciation on straight line basis, ascertain which project should be accepted. Present value of an annuity of Re.1 for 8 years = 5.335 and present value of Re.1 at the end of 8 years = 0.467, both at the discount rate of 10%. | 6 | (0) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||

(b) | The present capital structure of a company is as follows:
Additionally the following information are available:
The debentures are redeemable after 3 years and interest is paid annually. Ignoring flotation costs, calculate the company’s Weighted Average Cost of Capital (WACC), using market values as weights. | 10 | (0) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||

8. | Write short notes on any four out of the following: | 4x4 | (0) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||

(a) | Physical Maintenance of Capital; | (0) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||

(b) | Value in use of an Asset(as per AS–28); | (0) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||

(c) | Efficient Frontier; | (0) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||

(d) | Onerous Contract; | (0) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||

(e) | Business/Geographical Segment; | (0) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||

(f) | Corporate Governance Report – List of contents. | (0) |