Advanced Financial Management - November 2019 MTP

Shashi Co. Ltd has projected the following cash flows from a project under evaluation: 0 1 2 3 Rs. (in lakhs) (72) 30 40 30 The above cash flows have been made at expected prices after recognizing inflation. The firm’s cost of capital is 10%. The expected annual rate of inflation is 5%. Show how the viability of the project is to be evaluated. PVF at 10% for 1-3 years are 0.909, 0.826 and 0.751. (5 Marks) (b) Classic Finance…

(a) You as an investor had purchased a 4 month call option on the equity shares of X Ltd. of Rs.10, of which the current market price is Rs.132 and the exercise price Rs.150. You expect the price to range between Rs.120 to Rs.190. The expected share price of X Ltd. and related probability is given below: Expected Price (Rs.) Probability 120 .05 140 .20 160 .50 180 .10 190 .15 Compute the following: (1) Expected Share price at the…

(a) X Ltd. is a Shoes manufacturing company. It is all equity financed and has a paid-tip Capital of Rs. 10,00,000 (Rs. 10 per share). X Ltd. has hired Swastika consultants to analyze the future earnings. The report of Swastika consultants states as follows: (i) The earnings and dividend will grow at 25% for the next two years. (ii) Earnings are likely to grow at the rate of 10% from 3rd year and onwards. (iii) Further, if there is reduction…

(a) Merry is a Forex Dealer with XYZ Bank. She notices following information relating to Canadian Dollar (CAD) and German Deutschmark (DEM): Exchange rate – CAD 0.775 per DEM (spot) CAD 0.780 per DEM (3 months) Interest rates – 7% p.a. 9% p.a. (i) Assuming that there is no transaction cost, determine does the Interest Rate Parity holds in above quotations. (ii) If yes, then explain the steps that would be required to make an arbitrage profit if Merry is…

(a) Five portfolios experienced the following results during a 7- year period: Portfolio Average Annual Return (Rp ) (%) Standard Deviation (Sp ) Correlation with the market returns (r) A B 19.0 15.0 2.5 2.0 0.840 0.540 C D E 15.0 17.5 17.1 0.8 2.0 1.8 0.975 0.750 0.600 Market Risk (σm) Market rate of Return (Rm) Risk-free Rate (Rf) 1.2 14.0 9.0 Rank the portfolios using (a) Sharpe’s method, (b) Treynor’s method and (c) Jensen’s Alpha (8 Marks) (b)…

January 1, 2013 an investor has a portfolio of 5 shares as given below: Security Price No. of Shares A B C D E 349.30 480.50 593.52 734.70 824.85 5,000 7,000 8,000 10,000 2,000 1.15 0.40 0.90 0.95 0.85 The cost of capital to the investor is 10.5% per annum. You are required to calculate: (i) The beta of his portfolio. (ii) The theoretical value of the NIFTY futures for February 2013. (iii) The number of contracts of NIFTY the…

Write short notes on any four of the following: (a) Various techniques used in economic analysis. (b) Debt Securitization (c) Various processes of strategic decision making. (d) Cross Border Leasing (e) Synergy in the context of Mergers and Acquisitions (4 x 4 = 16 Marks)