Advanced Financial Management - May 2024 RTP

More Ltd. an NBFC is in the need of funds and hence it sold its receivables to MAC Financial Corporation (MFC) for ` 100 million. MFC created a trust for this purpose called General Investment Trust (GIT) through which it issued securities carrying a different level of risk and return to the investors. Further, this structure also permits the GIT to reinvest surplus funds for short term as per their requirement. MFC also appointed a third party, Safeguard Pvt. Ltd.…

You are a financial analyst at a prominent investment firm and have been tasked with empirically verifying the weak form of Efficient Market Hypothesis (EMH) Theory for the XYZ Stock Index, a collection of diverse stocks. You decided to conduct three different tests to assess whether the stock market follows the principles of the weak form of EMH. 2 MAY 2024 EXAMINATION REVISION TEST PAPER ADVANCED FINANCIAL MANAGEMENT Test 1 For the past five years, you collected daily price changes…

Mr. Shyam an investor is not sure about the expected price movement of the stock of Delta Corporation’s share. His friend Adi advised him to go for option contracts if he wants to play in the market with limited risk. Adi 4 MAY 2024 EXAMINATION REVISION TEST PAPER ADVANCED FINANCIAL MANAGEMENT advised him to follow below mentioned Strategy. (1) Purchase one 3-month call option with a premium of ` 30 and an exercise price of ` 550. (2) Purchase one…

The price of ACC stock on 31 December 2022 was ` 220 and the Futures price on the same stock on the same date, i.e., 31 December 2022 for March 2023 was ` 222. Other features of the Futures contract and related information are as follows: Time to expiration 3 months (0.25 year) Borrowing rate 15% p.a. Annual Dividend on the stock 25% payable before 31.03. 2023 Face Value of the Stock ` 10 Advise the investor the course of…

The following information is given for 3 companies that are identical except for their capital structure: Orange Grape Apple 1,00,000 1,00,000 1,00,000 Debt/assets ratio 0.8 0.5 0.2 Pre-tax cost of debt 16% 13% 15% Total invested capital MAY 2024 EXAMINATION REVISION TEST PAPER FINAL COURSE Cost of equity Operating Income (EBIT) 26% 22% 20% 25,000 25,000 25,000 The tax rate is uniform 35% in all cases. Required: (i) Compute the Weighted Average Cost of Capital of each company. (ii) Tabulate…

JKL Ltd., an Indian company has an export exposure of JPY 10,000,000 receivable December 31, 2022. Japanese Yen (JPY) is not directly quoted against Indian Rupee. The current spot rates are: INR/US $ ` 82.22 JPY/US$ JPY 132.34 It is estimated that Japanese Yen will depreciate to 154 against US $ and Indian Rupee to depreciate to ` 85 against US $. Forward rates as on date for 31 st December 2022 are as follows: INR/US $ = ` 86.50…

A UK based exporter exported goods to USA. The Invoice amount is $ 7,00,000 and credit period is 3 months. Exchange rates in London are as follows: Spot Rate ($/£) 1.5865 – 1.5905 3-month Forward Rate ($/£) 1.6100 – 1.6140 Rates of interest in Money Market: Deposit 5% 8% 7% 9% Justify your stand to choose money market hedge (including steps) instead of Forward Contract. Note: Make calculation upto 2 decimal points. Advanced Capital Budgeting Decisions