|2.||(a)||Explain how the combined effect of operating and financial leverages provide the risk profile of an organization. ||5|| (0) |
| ||(b)|| The Balance Sheets of MAGNAVISION LTD. As on 31.03.2008 and 31.03.2009 are given below: |
| 31.03.2008 || 31.03.2009 |
| Assets |
| Land & Buildings|
Cash & Bank Balances
| Total Assets || 20,98,000 || 24,84,000 |
| Liabilities |
| Share Capital|
P & L Account
| Total Liabilities || 20,98,000 || 24,84,000 |
The following details are provided:
| (i) || Dividend paid during the year 2008-09 was Rs.80,000. |
| (ii) || Net profit for the year 2008–09 was Rs.1,24,000 after charging depreciation on fixed assets amounting to Rs.1,40,000. |
| (iii) || Investments worth Rs.16,000 were sold during the year 2008–09 for Rs.17,000. No revaluation of the investments was carried out at the year–end. |
| (iv) || Fixed assets were sold at a profit of Rs.4,000 during the year and the profit is included in the net profit for the year ending 31.03.2009. |
You are require to prepare the Statement of Changes in Working Capital and the Funds Flow Statement for the year ended 31st March, 2009.
|10|| (0) |
|3.||(a)|| Explain briefly the functions performed by the Securities & Exchange Board of India (SEBI). ||5|| (0) |
| ||(b)|| ANKIT LTD. A manufacturing company produces 25,000 litres of special lubricants in its plant. The existing plant is not fully depreciated for tax purposes and has a book value of Rs.3 lakh (it was bought for Rs.6 lakh six years ago). The cost of the product is as under: |
| Cost/litre (Rs.) |
| Variable Costs|
It is expected that the old machine can be used for further period of 10 years by carrying out suitable repairs at a cost of Rs.2 lakh annually.
A manufacturer of machinery is offering a new machine with the latest technology at Rs.10 lakh after trading off the old plant (machine) for Rs.1 lakh. The projected cost of the product will then be:
| Variable Costs|
The fixed overheads are allocations from other department plus the depreciation of plant and machinery.
The old machine can be sold for Rs.2 lakh in the open market. The new machine is expected to last for 10 years at the end of which, its salvage value will be Rs.1 lakh. Rate of corporate taxation is 50%. For tax purposes, the cost of the new machine and that of the old one may be depreciated in 10 years. The minimum rate of return expected is 10%.
It is also anticipated that in future the demand for the product will remain at 25,000 litres.
Advise whether the new machine can be purchased. Ignore capital gain taxes.
[Given: PVIFA(10%, 10 years) = 6.145, PVIF(10%, 10 years) = 0.386.]
| (0) |
|4.|| The key information pertaining to the proposed new financing plans of ADVENTURE LTD. Is given below: |
| Sources of Funds || Financing Plan I || Financing Plan II |
| 15,000 shares of Rs.100 each|
12%, 25,000 shares of Rs.100 each
Rs.5,00,000 at a coupon rate of 10%
| 30,000 shares of Rs.100 each|
Rs.15,00,000, coupon rate 11%
The corporate tax rate is 35 per cent.
| (a) || Determine the two EBIT–EPS coordinates for each financial plan. |
| (b) || Determine the |
| (i) || Indifference point; and |
| (ii) || Financial break–even point for each financing plan. |
| (c) || Which plan has more financial risk and why? |
| (d) || Indicate over what EBIT range, if any, one plan is better than the other. |
| (e) || If the firm is fairly certain that its EBIT will be Rs. 12,50,000, which plan would you recommend, and why? |
| (3+4)+3+2+(1x3)=15 ||15|| (0) |
|5.||(a)||What are the differences between warrants and convertible debentures? ||5|| (0) |
| ||(b)|| The equity share of AMTREX LTD. Is quoted at Rs.210. A 3– month call option is available at a premium of Rs.6 per share and a 3 – month put option is available at a premium of RS.5 per share. |
| (i) || Ascertain the net pay–offs to the option holder of a call option and a put option, given that: |
| (1) || The strike price in both cases is Rs.220; and |
| (2) || The share price on the exercise day is Rs.200, Rs.210, Rs.220, RS.230 and Rs.240 respectively. |
| (ii) || Also indicate the price range at which the call and the put options may be gainfully exercised. |
|10|| (0) |
|6.||(a)||What is meant by Balanced Scorecard? ||5|| (0) |
| ||(b)|| A financial analyst has been asked to appraise NETWORKS LTD., an IT company in terms of the future cash generating capacity. He has projected the following after–tax cash flows: |
| Year || 1 || 2 || 3 || 4 || 5 |
| Cash Flows|
| 352 || 96 || 128 || 172 || 234 |
It is further estimated that beyond 5th year, cash flows will perpetuate at a constant growth rate of 7% per annum, mainly on account of inflation. The perpetuate cash flow is estimated to be Rs.2,052 lakh at the end of the 5th year.
Additionally the following information are available:
| (1) || The cost of capital is 20%. |
| (2) || The company has outstanding debt of Rs.724 lakh and cash/bank balance of Rs.542 lakh. |
| (3) || The number of outstanding shares of the company is 30.30 lakh. |
| Requirements: |
| (i) || What is the value of NETWORKS LTD. In terms of expected future cash flows?  |
| (ii) || Calculate the value of shareholders.  |
[Give: (PVIF at 20% for year 1 to 5): 0.833, 0.694, 0.579, 0.482, 0.402.]
| (iii) || The company has received a take over bid of Rs.402 per share. Is it good offer?  ||6+2+2=10|| (0) |
|7.||(a)|| VATSAN LTD. Is considering a project with the following expected cash flows; |
| Year || 1 || 2 || 3 |
| Expected Cash Inflows (Rs.) || 70,000 || 60,000 || 45,000 |
Due to uncertainty of future cash flows, the management decides to reduce the cash inflows to certainty equivalent (CE) by taking only 80% for 1st year, 70% for 2nd year and 60% for 3rd year respectively.
The cost of capital is 10%.
Is it worthwhile to take up the project?
|5|| (0) |
| ||(b)|| WILSON LTD. An Indian company has a payable of US $ 1,00,000 due in 3 months. The Company is considering to cover the payable through the following alternatives: |
| (i) || Forward contract; |
| (ii) || Money market; and |
| (iii) || Option. |
The following information is available with the company:
| Rs./$ 45.50/45.55|
| Interest rates(%) : Per Annum |
| 4.5/5.0 (Deposit/Borrow)|
Call option on $ with a strike price of Rs.46.00 is available at a premium of Rs.0.10/$. Put option on $ with a strike price of Rs.46.00 is available with a premium of Rs.0.05/$.
Treasury department of the company forecasted the future spot rate after 3 months to be:
| Spot rate after 3–m || Probability |
You are required to suggest the best alternative of hedging.
| (0) |
|8.||Write short notes on any three of the following: || || |
| ||(a)||Currency Futures; ||5|| (0) |
| ||(b)||Measures of Non–Financial Performance; ||5|| (0) |
| ||(c)||Foreign Direct Investment; ||5|| (0) |
| ||(d)||Balance of Payment. ||5|| (0) |