Advanced Financial Management - November 2015

1. XY Limited is engaged in large retail business in India. It is contemplating for expansion into a country of Africa by acquiring a group of stores having the same line of operation as that of India. The exchange rate for the currency of the proposed African country is extremely volatile. Rate of inflation is presently 40% a year. Inflation in India is currently 10% a year. Management of XY Limited expects these rates likely to continue for the foreseeable…

Tour Operator Ltd. is considering buying a new car for its fleet for local touring Company can acquire it either by borrowing the fund from bank at 12% p.a. or go for leasing option involving yearly payment (in the end) of = 2,70,000 for 5 years. The new car shall cost = 10,00,000 and would be depreciable at 25% as per WDV method for its owner. The residual value of car is expected to be = 67,000 at the end…

Two companies A Ltd. and B Ltd. paid a dividend of %3.50 per share. Both are anticipating that dividend shall grow @ 8%. The beta of A Ltd. and B Ltd. are 0.95 and 1.42 respectively. The yield on GOI Bond is 7% and it is expected that stock market index shall increase at an annual rate of 13%. You are required to determine: (a) Value of share of both companies. (b) Why there is a difference in the value…

5. The data given below relates to a convertible bond: Face value = 250 Coupon rate 12% No. of shares per bond 20 Market price of share F112 Straight value of bond % 235 Market price of convertible bond % 265 Calculate: (i) Stock value of bond. (ii) The percentage of downside risk. (iii) The conversion premium (iv) The conversion parity price of the stock.

6. Delta Ltd.’s current financial year's income statement reports its net income as % 15,00,000. Delta's marginal tax rate is 40% and its interest expense for the year was % 15,00,000. The company has % 1,00,00,000 of invested capital, of which 60% is debt. In addition, Delta Ltd. tries to maintain a Weighted Average Cost of Capital (WACC) of (i) Compute the operating income or EBIT earned by Delta Ltd. in the current year. (ii) What is Delta Ltd.'s Economic…

7. XY Ltd. has under its consideration a project with an initial investment of = 1,00,000. Three probable cash inflow scenarios with their probabilities of occurrence have been estimated as below: Annual cash inflow (2) 20,000 30,000 40,000 Probability 0.1 0.7 0.2 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 = 0, 20,000 and 30,000. You are required to…

8. From the following data for Government securities, calculate the forward rates: Face value () Interest rate | Maturity (Year) | Current price (%) 1,00,000 0% 1 91,500 1,00,000 10% 2 98,500 1,00,000 10.5% 3 99,000

Risk free interest rate 9% p.a. Dividend yield on Index 6% p.a. Beta of portfolio PAPER - 2: STRATEGIC FINANCIAL MANAGEMENT 53 We assume that a future contract on the BSE index with four months maturity is used to hedge the value of portfolio over next three months. One future contract is for delivery of 50 times the index. Based on the above information calculate: (i) Price of future contract. (ii) The gain on short futures position if index turns…