|Total No. of Questions — 5]||[Total No. of Printed Pages — 4|
|Time Allowed : 3 Hours||Maximum Marks : 100|
|Answer all questions.|
|Working notes should form part of the answer.|
|Wherever appropriate, suitable assumption should be made by the candidates.|
|1.||(a)|| XY Ltd. has under its consideration a project with an initial investment of Rs. 1,00,000. Three probable cash inflow scenarios with their probabilities of occurrence have been estimated as below: |
The project life is 5 years and the desired rate of return is 20%. The estimated terminal values for the project assets under the three probability alternatives, respectively, are Rs. 0, 20,000 and 30,000.
You are required to:
|(b)||Mr. A purchased a 3 month call option for 100 shares in XYZ Ltd. at a premium of Rs. 30 per share, with an exercise price of Rs. 550. He also purchased a 3 month put option for 100 shares of the same company at a premium of Rs. 5 per share with an exercise price of Rs. 450. The market price of the share on the date of Mr. A’s purchase of options, is Rs. 500. Calculate the profit or loss that Mr. A would make assuming that the market price falls to Rs. 350 at the end of 3 months.||4||(0)|
|(c)||Explain briefly, how financial policy is linked to strategic management.||4||(0)|
|2.||(a)|| P Ltd. has decided to acquire a machine costing Rs. 50 lakhs through leasing. Quotations from 2 leasing companies have been obtained which are summarised below: |
P Ltd. evaluates investment proposals at 10% cost of capital and its effective tax rate is 30%. Terminal payment in both cases is negligible and may be ignored.
Make calculations and show which quote is beneficial to P Ltd. Present value factors at 10% rate for years 1-4 are respectively 0.91, 0.83, 0.75 and 0.68. Calculations may be rounded off to 2 decimals in lakhs.
|(b)|| Based on the following information, determine the NAV of a regular income scheme on per unit basis: |
There has been a diminution of 20% in unlisted bonds and debentures. Other fixed interest securities are at cost.
|(c)||How is a stock market index calculated? Indicate any two important stock market indices.||4||(0)|
|3.||(a)|| The following information is given for 3 companies that are identical except for their capital structure: |
The tax rate is uniform 35% in all cases.
|(b)||The rate of inflation in India is 8% per annum and in the U.S.A. it is 4%. The current spot rate for USD in India is Rs. 46. What will be the expected rate after 1 year and after 4 years applying the Purchasing Power Parity Theory.||4||(0)|
|(c)||List and briefly explain the main functions of an investment bank.||4||(0)|
|4.||(a)|| T Ltd. and E Ltd. are in the same industry. The former is in negotiation for acquisition of the latter. Important information about the two companies as per their latest financial statements is given below: |
T Ltd. plans to offer a price for E Ltd., business as a whole which will be 7 times EBIDAT reduced by outstanding debt, to be discharged by own shares at market price.
E Ltd. is planning to seek one share in T Ltd. for every 2 shares in E Ltd. based on the market price. Tax rate for the two companies may be assumed as 30%.
Calculate and show the following under both alternatives - T Ltd.’s offer and E Ltd.’s plan:
Calculations (except EPS) may be rounded off to 2 decimals in lakhs.
|(b)||Briefly explain what is an exchange traded fund.||4||(0)|
|5.||(a)|| Consider the following data for Government Securities: |
Calculate the forward interest rates.
|(b)|| The following market data is available: |
Spot USD/JPY 116.00
Forward Rate Agreement (FRA) for Yen is Nil.
Calculate profit in such case.
|(c)||Write a short note on Debt Securitisation.||4||(0)|