Advanced Financial Management - November 2020

15 Million of six months LIBOR + 10.00% for a period of 24 months. The company anticipates a rise in LIBOR, hence it proposes to buy a Cap Option from its Bankers at the strike rate of 8.00%. The lump sum premium is 1.00% for the entire reset periods and the fixed rate of interest is 7.00% per annum. The actual position of LIBOR during the forthcoming reset period is as under: Reset Period LIBOR 1 9.00% 2 9.50% 3…

(a) The Treasury desk of a global bank incorporated in UK wants to invest GBP 200 million on 1st January, 2019 for a period of 6 months and has the following options: (1) The Equity Trading desk in Japan wants to invest the entire GBP 200 million in high dividend yielding Japanese securities that would earn a dividend income of JPY 1,182 million. The dividends are declared and paid on 29" June. Post dividend, the securities are expected to quote…

(a) X Ltd. is studying the possible acquisition of Y Ltd. by way of merger. The following data are available in respect of both the companies. Particulars X Ltd. Y Ltd. Market Capitalization (Rs.) 75,00,000 90,00,000 Gross Profit Ratio 20% 20% Inventory Turnover Ratio 5 times 4 times Debtor Turnover Ratio 3 times 5 times 12% Debenture (Rs.) 10,00,000 - 10% Debenture (Rs.) - 14,40,000 No. of Equity Shares 1,00,000 60,000 Operating Expenses 86% 78% Corporate Tax Rate 30% 30%…

4. (a) A mutual fund raised Rs. 150 lakhs on April 1, 2018 by issue of 15 lakh units at Rs. 10 per unit. The fund invested in several capital market instruments to build a portfolio of Rs. 140 lakhs, Initial expenses amounted to Rs. 8 lakhs. During the month of April, the fund sold certain instruments costing Rs. 44.75 lakhs for Rs. 47 lakhs and used the proceeds to purchase certain other securities for Rs. 41.6 lakhs. The fund…

Rs. 410 Crores, its debt, is worth Rs. 170 Crores. Printer Division segments value is attributable to 74%, which has an Asset Beta (B,) of 1.45, balance value is applied on Spares and Consumables Division, which has an Asset Beta (Bsc) of 1.20 KGFL Debt beta (Bo) is 0.24. You are required to calculate: (i) Equity Beta (Be), (ii) Ascertain Equity Beta (Be), if KGF Ltd. decides to change its Debt Equity position by raising further debt and buying back…

6. (a) A company has an EPS of Rs. 2.5 for the last year and the DPS of Rs. 1. The earnings is expected to grow at 2% a year in long run. Currently it is trading at 7 times its earnings. If the required rate of return is 14%, compute the following: (i) An estimate of the P/E ratio using Gordon growth model. (ii) The Long-term growth rate implied by the current P/E ratio. (6 Marks) (b) A multinational…