**21**answerable questions with

**0**answered.

Roll No…………… | |

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 distinctly. |

2. Tables showing the present value of Re. 1 and the present value of an annuity of Re. 1 for 15 yrs. are annexed. | |

Marks |

1. | (a) | "Internal treasury control is a process of self–improvement." Explain. | 5each | (0) | ||||||||||||||||||||||||||||

(b) | List out the benefits of public deposits to the company as well as to the depositors. | (0) | ||||||||||||||||||||||||||||||

(c) | "For the lessor, lease decision is akin to a capital budgeting exercise." Examine the statement and explain its implications. | (0) | ||||||||||||||||||||||||||||||

(d) | "Economic value added (EVA) concept is in conformity with the objective of wealth maximisation." Explain. | (0) | ||||||||||||||||||||||||||||||

2. | (a) | Mention any four tools available to cover exchange rate risk. | 4 | (0) | ||||||||||||||||||||||||||||

(b) | A firm has total credit sales of Rs. 80 lakh and its average collection period is 80 days. The past experience indicates that bad debt losses are around 1% of the credit sales. The firm spends Rs. 1,20,000 per year on administering its credit sales. This cost includes salary of one officer and two clerks who handle the credit checking, collection, etc., telephone and telefax charges. These are avoidable costs. A factor is prepared to buy the firm's receivables He will charge 2% commission. He will advance against receivables to the firm at 18% after withholding 10% as reserve. What is the cost of factoring? Should the firm avail factoring service? | 6 | (0) | |||||||||||||||||||||||||||||

(c) | Following information is available in respect of EPS and DPS of Intelligent Ltd. for the last five years:
Dividends for a particular year are paid in the same calendar year. If the same dividend policy is maintained, it is expected that the annual growth rate of earnings will be no better than the average of last four years. The risk–free rate is 6% and the market risk premium is 4%. With reference to the market rate of return, the equity shares of the company have a ? of 1.5 and is not expected to change in near future. | 10 | (0) | |||||||||||||||||||||||||||||

3. | (a) | Rex of Mumbai intends to set-up a plant involving a cost outlay of Rs. 20 lakh. After vigorous persuasion, the bankers agree to finance the project and allow a moratorium period of 3 years, i.e., repayment will start from the end of third year with the condition that the loan as such will be squared up by Rex in three equal yearly installments along with interest @ 6% per annum. You are required to find out the amount of the yearly installment and also the amount to be paid on account of interest. | 4 | (0) | ||||||||||||||||||||||||||||

(b) | The market portfolio has a historically based expected return of 0.10 and a standard deviation of 0.04 during a period when risk–free assets yielded 0.03. The 0.07 risk premium is thought to be constant through time. Riskless investments may now be purchased to yield 0.09. A security has a standard deviation of 0.08 and a co–efficient of correlation with the market portfolio is 0.85. The market portfolio is now expected to have a standard deviation of 0.04. You are required to find
| 6 | (0) | |||||||||||||||||||||||||||||

(c) | DIGI Computers Ltd. is a manufacturer of computer systems. The company is marketing its products in domestic as well as global markets. It has a total sales of Rs. 1 crore. Its variable and fixed costs amount to Rs. 60 lakh and Rs. 10 lakh respectively. It has borrowed Rs. 60 lakh @ 10% per annum and has an equity capital of Rs. 75 lakh.
| 10 | (0) | |||||||||||||||||||||||||||||

4. | Differentiate between the following: | 4each | ||||||||||||||||||||||||||||||

(i) | ‘Factoring’ and ‘bill discounting’. | (0) | ||||||||||||||||||||||||||||||

(ii) | ‘NPV’ and ‘IRR’ methods of capital budgeting. | (0) | ||||||||||||||||||||||||||||||

(iii) | ‘Bonus issue of shares’ and ‘stock split’. | (0) | ||||||||||||||||||||||||||||||

(iv) | ‘Stock future’ and ‘index future’. | (0) | ||||||||||||||||||||||||||||||

(v) | ‘Futures contracts’ and ‘forward contracts’. | (0) | ||||||||||||||||||||||||||||||

5. | (a) | Write a short note on ‘credit rating’. | 4 | (0) | ||||||||||||||||||||||||||||

(b) | Following are the extracts from financial statements of Zipway Ltd.:
The market price per equity share is Rs. 15 and per debenture is Rs. 95. Calculate the following: | 8 | (0) | |||||||||||||||||||||||||||||

(c) | Madhuri Ltd. is evaluating a project for which the initial investment required is Rs. 50 lakh to be met by internally generated funds of Rs. 10 lakh, from a rights issue of Rs. 15 lakh and the rest from a term loan @ 12% per annum. Rights issue will involve flotation cost of 5% and the term loan processing will cost 1%. Corporate tax rate is 40%. The risk–free rate of interest is 6.5%, market return is 15% and the relevant asset beta for the investment is estimated to be 1.5. Net operating cash inflows after tax from the project are: Year–1: Rs. 15 lakh; Year–2: Rs. 35 lakh; and Year–3: Rs. 15 lakh. Besides these cash inflows, residual value of Rs. 5 lakh (net of taxes) is also expected at the end of third year. Should the project be taken up? | 8 | (0) | |||||||||||||||||||||||||||||

6. | (a) | Syntex Ltd. has to make a US $5 million payment in three month’s time. The required amount in dollars is available with Syntex Ltd. The management of the company decides to invest them for three months and following information is available in this context: – The US $ deposit rate is 9% per annum. – The sterling pound deposit rate is 11% per annum. – The spot exchange rate is $1.82/pound. – The three month forward rate is $1.80/pound. Answer the following questions–
| 15 | (0) | ||||||||||||||||||||||||||||

(b) | The following quotes are available for 3-months options in respect of a share currently traded at Rs. 31:
An investor devises a strategy of buying a call and selling the share and a put option. Draw his profit/loss profile if it is given that the rate of interest is 10% per annum. What would be the position if the strategy adopted is selling a call and buying the put and the share? | 5 | (0) | |||||||||||||||||||||||||||||

7. | Daisy Ltd.. is being floated with a project to manufacture a new product called ‘Novo Fresh’. Currently it is being imported at a landed cost of Rs. 8,500 per ton. Following data has been collected relating to the project:
| 14+3+3 | (0) |