Advanced Financial Management - November 2015 MTP

A Mutual Fund is holding the following assets in Rs. Crores : Investments in diversified equity shares 90.00 Cash and Bank Balances 10.00 100.00 The Beta of the portfolio is 1.1. The index future is selling at 4300 level. The Fund Manager apprehends that the index will fall at the most by 10%. How many index futures he should short for perfect hedging? One index future consists of 50 units. Substantiate your answer assuming the Fund Manager's apprehension will materialize.…

(a) Fair finance, a leasing company, has been approached by a prospective customer intending to acquire a machine whose Cash Down price is Rs. 3 crores. The customer, in order to leverage his tax position, has requested a quote for a three year lease with rentals payable at the end of each year but in a increasing manner such that they are in the ratio of 1 : 2 : 3. Depreciation can be assumed to be on straight line…

(a) The following market data is available: Spot USD/JPY 116.00 Deposit rates p.a. 3 months 6 months 4.50% 5.00% 0.25% 0.25% Forward Rate Agreement (FRA) for Yen is Nil. 1. What should be 3 months FRA rate at 3 months forward?

12 months LIBORS are 5% & 6.5% respectively. A bank is quoting 6/12 USD FRA at 6.50 – 6.75%. Is any arbitrage opportunity available? Calculate profit in such case. (6 Marks) (b) XYZ Ltd. a US firm will need £ 3,00,000 in 180 days. In this connection, the following information is available: Spot rate 1 £ = $ 2.00 180 days forward rate of £ as of today = $1.96 Interest rates are as follows: 180 days deposit rate 180…

(a) GKL Ltd. is considering installment sale of LCD TV as a sales promotion strategy. In a deal of LCD TV, with selling price of Rs. 50,000, a customer can purchase it for cash down payment of Rs. 10,000 and balance amount by adopting any of the following options: Tenure of Monthly installments 12 Equated Monthly installment Rs. 3800 Rs. 2140 Required: Estimate the flat and effective rate of interest for each alternative. PVIFA 2.05%, 12 =10.5429 PVIFA2.10%, 12 =10.5107…

(a) Calculate the value of share from the following information: Profit of the company Equity capital of company Par value of share Debt ratio of company Long run growth rate of the company Beta 0.1; risk free interest rate Market returns Capital expenditure per share Depreciation per share Change in Working capital Rs. 290 crores Rs. 1,300 crores Rs. 40 each 27 8% 8.7% 10.3% Rs. 47 Rs. 39 Rs. 3.45 per share (6 Marks) (b) A USA based company…

B Ltd. Assuming that it has been ensured that after merger the EPS shall be at least Rs. 5.33 per share and there shall be no synergies gain from merger complete the following table: Price Per Share Price Earning Ratio No. of Shares Total Market Value A Ltd. Rs. 4.00 Rs. 80.00 20 10,00,000 8,00,00,000 B Ltd. Rs. 5.00 Rs. 50.00 10 20,00,000 10,00,00,000 Merged Firm Rs. 5.33 (8 Marks) (b) Two companies X Ltd. and Y Ltd. paid a…