Advanced Financial Management - November 2016 MTP

(a) Gibralater Limited has imported 5000 bottles of shampoo at landed cost in Mumbai, of US $ 20 each. The company has the choice for paying for the goods immediately or in 3 months’ time. It has a clean overdraft limited where 14% p.a. rate of interest is charged. Calculate which of the following method would be cheaper to Gibralter Limited. (i) Pay in 3 months’ time with interest @ 10% and cover risk forward for 3 months. (ii) Settle…

New Projects Ltd. is evaluating 3 projects, P-I, P-II, P-III. Following information is available in respect of these projects: P-I P-II P-III Rs. 15,00,000 Rs. 11,00,000 Rs. 19,00,000 Inflows-Year 1 6,00,000 6,00,000 4,00,000 Year 2 Year 3 6,00,000 6,00,000 4,00,000 5,00,000 6,00,000 8,00,000 Year 4 Risk Index 6,00,000 1.80 2,00,000 1.00 12,00,000 0.60 Minimum required rate of return of the firm is 15% and applicable tax rate is 40%. The risk free interest rate is 10%. Required: (i) Find out…

Ltd. and Dimple Ltd. are planning to merge. The total value of the companies are dependent on the fluctuating business conditions. The following information is given for the total value (debt + equity) structure of each of the two companies. Business Condition High Growth Medium Growth Slow Growth Probability 0.20 0.60 0.20 Simple Ltd. Rs. Lacs Dimple Ltd. Rs. Lacs 820 1050 550 825 410 590 The current debt of Dimple Ltd. is Rs. 65 lacs and of Simple Ltd.…

(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: Quote A Quote B Lease term 3 years 4 years Initial lease rent (Rs. lakhs) 5.00 1.00 Annual lease rent (payable in arrears) (Rs. lakhs) 21.06 19.66 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…

Free Solutions (TFS) is an authorized service center of a reputed domestic air conditioner manufacturing company. All complaints/ service related matters of Air conditioner are attended by this service center. The service center employs a large number of mechanics, each of whom is provided with a motor bike to attend the complaints. Each mechanic travels approximately 40000 kms per annuam. TFS decides to continue its present policy of always buying a new bike for its mechanics but wonders whether the…

(a) An importer requests his bank to extend the forward contract for US$ 20,000 which is due for maturity on 30 th October, 2010, for a further period of 3 months. He agrees to pay the required margin money for such extension of the contract. Contracted Rate – US$ 1= Rs. 42.32 The US Dollar quoted on 30-10-2010:Spot – 41.5000/41.5200 3 months’ Premium -0.87% /0.93% Margin money for buying and selling rate is 0.075% and 0.20% respectively. Compute: (i) The…

(a) Followings are the spot exchange rates quoted at three different forex markets: USD/INR 68.30 in Mumbai GBP/INR 95.80 in London GBP/USD 1.3231 in New York The arbitrageur has USD1,000,000. Assuming that there are no transaction costs, explain whether there is any arbitrage gain possible from the quoted spot exchange rates. (5 Marks) (b) An investors is considering the purchase of the following Bond: Face value Rs. 100 Coupon rate Maturity 11% 3 years (i) If he wants a yield…