Advanced Financial Management - May 2018 MTP

(a) Calculate the price of 3 months PQR futures, if PQR (FV `10) quotes `220 on NSE and the three months future price quotes at ` 230 and the one month borrowing rate is given as 15 percent and the expected annual dividend is 25 percent per annum payable before expiry. Also examine arbitrage opportunities. (5 Marks) (b) Ms. Kiran had a surplus fund of ` 2,00,000 on 31.03.2016. She is interested in constructing a portfolio of shares of the…

(a) Following are the estimates of the net cash flows and probability of a new project of M/s X Ltd.: Initial investment Estimated net after tax cash inflows per year P=0.3 P=0.5 P=0.2 0 4,00,000 1 to 5 1,00,000 4,00,000 1,10,000 4,00,000 1,20,000 50,000 60,000 Estimated salvage value (after tax) 5 20,000 Required rate of return from the project is 10%. Find: (i) The expected NPV of the project. (ii) The best case and the worst case NPVs. (iii) The…

(a) Engineers Ltd. is in the business of manufacturing nut bolts. Some more product lines are being planned to be added to the existing system. The machinery required may be bought or may be taken on lease. The cost of machine is ` 20,00,000 having a useful life of 5 years with the salvage value of ` 4,00,000 (consider short term capital loss/gain for the Income tax). The full purchase value of machine can be financed by bank loan at…

(a) M Ltd. belongs to a risk class for which the capitalization rate is 10%. It has 25,000 outstanding shares and the current market price is ` 100. It expects a net profit of ` 2,50,000 for the year and the Board is considering dividend of ` 5 per share. M Ltd. requires to raise ` 5,00,000 for an approved investment expenditure. Show, how the MM approach affects the value of M Ltd. if dividends are paid or not paid.…

April 1, 2015, an investor has a portfolio consisting of eight securities as shown below: Security Market Price No. of Shares Value A B C D E F G H 29.40 318.70 660.20 5.20 281.90 275.40 514.60 170.50 400 800 150 300 400 750 300 900 0.59 1.32 0.87 0.35 1.16 1.24 1.05 0.76 The cost of capital for the investor is 20% p.a. continuously compounded. The investor fears a fall in the prices of the shares in the near…

(a) An investor is holding 1,000 shares of Fatlass Company. Presently the rate of dividend being paid by the company is ` 2 per share and the share is being sold at ` 25 per share in the market. However, several factors are likely to change during the course of the year as indicated below: Existing Revised Risk free rate 12% 10% Market risk premium 6% 4% Beta value 1.4 1.25 Expected growth rate 5% 9% In view of the…

Write short notes on any of four of the following: (a) Explain the Interface of Financial Policy and Strategic Management. (b) Operations in foreign exchange market are exposed to a number of risks. (c) Merger Failures or Potential Adverse Competitive Effects. (d) Zero coupon bonds. (e) Different methods for evaluating the performance of Mutual Fund. (4 × 4 = 16 Marks) Test Series: April, 2018 MOCK TEST PAPER –2 FINAL (OLD) COURSE: GROUP – I PAPER – 2 : STRATEGIC…

(a) DEF Ltd has been regularly paying a dividend of Rs. 19,20,000 per annum for several years and it is expected that same dividend would continue at this level in near future. There are 12,00,000 equity shares of Rs. 10 each and the share is traded at par. The company has an opportunity to invest Rs. 8,00,000 in one year's time as well as further Rs. 8,00,000 in two year's time in a project as it is estimated that the…