|Time allowed : 3 hours||Maximum marks : 100|
|Total number of questions : 7||Total number of printed pages : 4|
|Note:||1. Answer FIVE questions including Question No. 1 which is compulsory. All working notes should be shown |
|2. Tables showing the present value of Re. 1 and the present value of an annuity of Re. 1 for 15 yrs. are annexed.|
|1.||(a)||"Treasury management has both macro and micro aspects." Explain.||5each||(0)|
|(b)||"Reserves and surpluses have no cost." Do you agree ? Give reasons for your answer.||(0)|
|(c)||Explain ‘capital account convertibility’.||(0)|
|(d)||Distinguish between the hedging and conservative approaches to financing of working capital.||(0)|
|2.||(a)|| The management of Urmila Ltd. is considering an investment project costing Rs.1,50,000 and it will have a scrap value of Rs.10,000 at the end of its 5 years life. Transportation charges and installation charges are expected to be Rs.5,000 and Rs.25,000 respectively. If the project is accepted, a spare part inventory of Rs.10,000 must also be maintained. It is estimated that the spare parts will have an estimated scrap value of 60% of their initial cost after 5 years. Annual revenue from the project is expected to be Rs.1,70,000; and annual labour, material and maintenance expenses are estimated to be Rs.15,000, Rs.50,000 and Rs.5,000 respectively. The depreciation and taxes for five years will be — |
Calculate the net cash flows for each year and cost of the project. Evaluate the project at 12% rate of interest.
|(b)|| Blue Ltd. is contemplating a debenture issue on the following terms : |
The current market rate of interest on similar debentures is 15% per annum. The company proposes to price the issue so as to yield a (compounded) return of 16% per annum to the investors. Determine the issue price. Assume the redemption of debenture at a premium of 5%.
|3.||(a)||Horizon Enterprises is a manufacturer and exporter of woollen garments to most of the European countries. Their business is expanding day by day and in the previous financial year the company has registered a 25% growth in export business. The company is in the process of considering a new investment project. It is an all equity financed company with 10,00,000 equity shares of face value of Rs.50 per share. The current issue price of this share is Rs.125 ex-dividend. Annual earnings are Rs.25 per share and in the absence of new investments will remain constant in perpetuity. All earnings are distributed at present. A new investment is available which will cost Rs.1,75,00,000 in one year’s time and will produce annual cash inflows thereafter of Rs.50,00,000. Analise the effect of the new project on dividend payments and the share price.||12||(0)|
|(b)||Sunshine Ltd. is engaged in the production of synthetic yarn and planning to expand its operations. In this context, the company is planning to import a multi–purpose machine from Japan at a cost of 2,460 lakh. The company is in a position to borrow funds to finance import at 12% interest per annum with quarterly rests. India based Tokyo branch has also offered to extend credit of 90 days at 2% per annum against opening of an irrevocable letter of credit. Other information are as under : |
Present exchange rate : Rs.100 = 246.
90 Days forward rate : Rs.100 = 250.
Commission charges for letter of credit at 4% per 12 months.
Advise whether the offer from the foreign branch should be accepted.
|4.||(a)||What is credit rating and how does it benefit the investors and the company ?||5each||(0)|
|(b)||Describe the meaning of ‘index futures’. What is the scope of risk management by using index futures ?||(0)|
|(c)||Distinguish between ‘capital market line’ and ‘security market line’.||(0)|
|(d)||Discuss the basic characteristics of depository system implemented in India.||(0)|
|5.||(a)|| Prepare working capital forecast and projected profit and loss account and balance sheet from the following information : |
Production during the previous year was 10,00,000 units which is expected to be maintained during the current year. The expected ratios of cost to selling price are —
Raw material ordinarily remains in stock for 3 months before production. Every unit of production remains in process for 2 months. Finished goods remain in stock for 3 months. Creditors allow 3 months for payment and debtors are allowed 4 months credit. Estimated minimum cash to be held will be Rs.2,00,000. Lag in payment of wages and overheads is expected to be half a month. The selling price will be Rs.8 per unit. The production is in continuous process and sales are in regular cycle.
|(b)||How does ‘outsourcing’ benefit the company ?||5||(0)|
|6.||(a)|| A company’s capital structure consists of the following : |
The company earns 12% on its employed capital. The tax rate is 50%. The company requires a sum of Rs.25 lakh to finance its expansion programme for which following alternatives are available to it :
It is estimated that the price earning ratio in case of equity shares, preference shares and debentures financing would be 21.4, 17.0 and 15.7 respectively.
|(b)||"Risk and return go together and there is always a conflict between the return from a decision and the risk it brings to the firm." Discuss this statement in the light of finance function.||5||(0)|
|(c)||How the ‘real time gross settlement’(RTGS) mechanism initiated by the Reserve Bank of India would help treasury managers to manage their funds more efficiently ?||5||(0)|
|7.||Write short notes on the following :||5each|
|(ii)||Green shoe option||(0)|
|(iv)||Systematic and unsystematic risks.||(0)|