© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India
© The Institute of Chartered Accountants of India
© The Institute of Chartered Accountants of India
© The Institute of Chartered Accountants of India
© The Institute of Chartered Accountants of India
© The Institute of Chartered Accountants of India
© The Institute of Chartered Accountants of India
© The Institute of Chartered Accountants of India
© The Institute of Chartered Accountants of India
© The Institute of Chartered Accountants of India
 RoI No. ...... ....... ..........-t"'-.,i)li
lJi*o-t qAY 2015
i,r,r;icr,nL
r"rr.ll.:!l4a:lli
Tod No. 7
ofQuslions Total No. otPrinnd Prg€s - 15

TimeAllowed 3 HouE Mdinum Mar*6 - 100

KLA
r Arswers io qEstons e to be given otly in Etrglish ercepr i! the crs€ of

c€ndidaes who have opted for Hirdi Medrm ff a cahdidale has not opt€d for Itindi
Medim, his/he nswd in Hindi will @i be valued-

QuestionNo. I is @oPulsory-

Attempt tuy Eye out of the remining sir qu6tioN.

Wh@vq appmpriare, sltrlable asuptiols should tE mde ed itdicated in the

a$we( bY the csdidate

Worting Noles should form pad of tb€ eswer.

Mr.tr
l. (a) EiD Ltd, is o export btrdnas houF. Tbe conp&y PrcPls iovoice in 6
*Jtoo*' *o"y. It3 debton of US$ 10,000,000 is due oo
AFit t.2015.
ML*er ilfoisdor 4 at Joualy 1, 2015 is :
f,xd!trgrx${ USi / INR Ctl]uo Futfts USS l [.IR
o.ot667 conEact siz€ i 124,816975

0.016529 0.0[6519

0.016129 0.016118

KI,A P.T.O.

© The Institute of Chartered Accountants of India

 KLA Ma.ks

Initid Ma.gin
I 17,500

< 22,500 7%

on Aprn l, 2015 rbe spot nre us$/INR is 0.016136 dd cDlMcy

tuturc nre ie 0.016 I 14

wich of the folo*ing tuthods would be mst ad!€ntageous to EFD

Lrd ?

(r, Uting lorod@nrEd

(ii) Usidg cmncy futur!
Gn) Not hedging the clllmcy .ist

O). T(J\r' Lid. has inve$d in 6E Mudr+'Ftnd shemes Fr 6e detlils 4

d 's
givab€low:
Scheme X

1-10-2014 1-1-2015 1,-3:2015

Amomt oflnvestmem ({) 15,00,000 7,50,0m 2,50,000

N4 Asser vatue at entf da!€ ? 12.50 t 36.25 4 27.15

Dividend rccoived up to Maicl t 45,000 < 12500 Nil

31,2015 :

N€t A$et value as ai Mmh 12.25' f 36.45 1n.55

31,2015

wlar wiu be tbeetr{dve yieLd (smm basb) for*b of tbe above

thr rhme(uflo Jlj Msrch 2Ol5 ?

KI,A

© The Institute of Chartered Accountants of India

 (3)

KLA M!.ks
(c) PQR Ltd. hd crcdit ,al€r of ( 165 lrcs during the nnocial yed 6

2014-15 ald its alen8e @ll@tion p€riod is 65 days. IlE plst

eiperide sugasts that bad debt los|€s aE 4.28% of crcdit sal€s.

Adminisudiotr @st incun d in colelion of its .eceiv.bl€s is

( 12,35,@0 p.a- A faclor is prcp@d to buy the comp&y's reei%bl6
by chating l-95% @mission. The fetor wiu pay advd@ on
l@ivabl6 to th€ company .t d inter€sr de of 16% P.a. aftq

withloldDg 15% 6 rcsd€. "

BsdDaie the etrective cost of f&toriry to &e onpey ssuoing 360

(d)'ft€ folowirg irJmtioniscolleded Aom$eatriual rcpons of J Ltd : 4

Itofirh.forc t x { 2.50oorc

Rhqtiorrario 4opqcdr

Nrimber of 9ltstaDding sh&€s 50,00,000

Equity capitalizalio! rar€ 12 p€rceoa

Rate ofrctuiibn investde 15 P*en1

what shourd be th€ rnarliet pd@ Fr share s@ordilg ro Gordotr's model

KL{ P.T.O.

© The Institute of Chartered Accountants of India

 (1)

KL{ Ma.ks
2. (a) l'.Ir. Shydis holdilg the follopirg seuilies: 6
Disiddd
ol
Particub6 cost ;;;l Mdtel Price Beta
Ssudti6 I'a I
Equiry shaM:
Ltd.
Gold 10,000 1,725 9,800 0.6

Silvdl-t<1. 15,000 1,000 ' 16,\n 0.8

Ercn@ Ltd. 14,000 700 20,000 0.6

GOIBotrds 36,000 3,600 34,500 1.0

Avense ieruft or rbe podoUo is 15.7%.

Using Avenge Beta, Cal@lat€ :

(i) Expeted Ete of rctM in €arh ca!e, uling tbe Capitar Asse.
Pricing Model TCAPM,
(ii) Pjsk Ii!. Fte of rcne
O) Oi 3rd Mdch. 2013, rhe folowilg infdoation about Bonds is 8

Date(s)
SeuritJ Rate
t
10,000 31d Mmb,2023 N.A.

T-Bi1r 1,00,000 md Jre,2ol3 N,A.

to.1t% Gor 2923 r00 3 f'Mdcb, 2!23 10Jl

r0%6012018 tm 3l! Mdcb, 201E 10.00

Calcolete:
(i) If l0 y€ars yield is 7.5% p.&, what pric€ tbe Zero CoupoD Bond
qoutd fer.b d lr'Mmh.20lJ'
KI-A.

© The Institute of Chartered Accountants of India

 (5)
KLA Mnrk
G) What wil be the muali?td yield il $e T Bill k tmded @ 98500 ?

6n, r 10.7r% CJOl2fr23 Botrd having }!etd 10 mrurity is 8%, what

price would it fet h d
Apdl 1. 2013 (.fter couPor payneni on
3f'March) ?

Cv) r l0% OOI2018 Bond having yicld to nannity is 8%, what Price
*ould it fetch on April 1, 2013 (aftd.coupon paytrn. o!
3l'March) ?

3. (a) R Lld. ed S Ltd. at€ compuies that opehle in the sme itrdustrv- The 8
fitrscial statetrnts ofboo th€ @mPades for tbe c!ft fiuncial ve3r
e as fouows :
Brlm.e Shet
R Lrd- (O s Ltd (o
EquitJ & Llabltd€!

Eguity Capitd (t 10 €ach) 20,00,000 16,00,000

4,00.000

Nd-.vftent Eabiliti.s
10.00,000 6,00.000

14,00,000 E,00,000

Totsl a8,0o,txto 30,m,000

20,00,000 10.00,000

28,00.000 2!,00,000

Total 48,00,000 30,oo,oo0

KLA P.T,O.

© The Institute of Chartered Accountants of India

 (6)

Kl"{ Mad$
Insfre Stlt mdt
R Lrd. () s Lrd. (a
69,00,000 34,m,000

B. cost of coods sold 55,20.000 27.m,W

c. GNPntrr(A-B) 13,80,000 6,80.000

D. qpemting Expens 4,00,000 2,00,000

1,60,000 96,000

r. Errnh*s befon tar6 tc{D+EI E,20,000 3,E4,0m

G. Td6 @ 35% 2,8?,000 1,34.400

H. Emi!8, After Tai (EAT) t33,000 2A9.dn

Addldord lDfonutioD r

No. ofequity sh@s 2,00,000 l,60,m0

Diliddd (D/P)
Psymcnt Frtio ZO% 30%

ldaiket price pershar€ 150 120

i
Assu@ thar both co4snies @ in the proce$ of legot'ating a mrgd
I
tbrbuqh scbuse of Equiry stms :

(i) Deompose fte $are price ofboti the compeiel inr^ F s&P/B
6mmtre !. Also s.s.elare 6eir EPS fiqurEs uto Retum Os
Equity (ROE) dd E@k VaILB / Irtrilsic Vriue per sh@

riir L.stidale turuE EPS rro$ln Bt6 for botb rhe coDpujes.

RI-A

© The Institute of Chartered Accountants of India

 l7)
KLA Mlrt
(iii) Bas€d on expeted opealirg sln€rgios, R Ld. estimled that the
intdnsic vahe of S Lid. Equity she would b€ I 25 per sh@ on

its &quisilion. You e Fquiftd to develop a dge ofjus!fiable

Equily Sttre E chdge ratioi that ce be offered by R Ltd. to
tle starchold,ef df S Ltd. Eas.d on you dalysis on parts (i) ed
(ii), would you exlet the tregoiiated t€mc ro rF d.vr rd rh.
upper or lh€ lo\t€. exch.nSe ratio limiti and why ?

(b) FoUowing ale dpdetailspfa portrolioconsisdtrS ofth@ thar$ | E

ShrE Porfolto Tocd

weight

0.20 0,:10 t4 0.015

B 0.50 0.50 l5 0.(D5

c 0.30 L-t0 21 0.tm

Stsndard D€viation of Meket Poitfolio Retums - l0%

You m givgl tb. folowing additiond dlta I

covarime (A, B) = 0030

Covdialce I A, C) = 0.020
covarian@ (B. c) = 0.040

Calclnaie thetoUowins:

.{D lbe Pd,.ifolio B€.(a

(i0 R€sidiral v$id@ of€ach ofthe ihree shar€s

(iii) Poffolio varidce usins sharP€ Inder Model

(iv) Pordolio vuidce (on the basis of nod@ Podolio lherv dven

. KLA P.T.O.

© The Institute of Chartered Accountants of India

 (8)

KI-A Marks
4. (a) A manufacnriog llnit enSaged in th€ p.oduction of aulomobile pa.t! n ?

coNideriry a prcposal of purchasins one of Oe two plots, details of

vhich !re given below I

Phlrt a

120,00.000 ? 38,00,000

t 4,00,000 12.00.000

Life 20 yean

Scrap value.fterft life t 4.00,000 14.00,m0

ouFur per miNle (rniir) 200 400

'me amu.l @sts of the teo platrtr @ as follow3 :

Pl&aB

funninr houn Fr mm 25ffi 2,5m

cd"t, (iI9 (iE o

1
1,00,000 1,(),000

4,80.000 6,m,000

80,0m 1,00,000

2,40,000 2.so.odx

60,000 80.000

KLA

© The Institute of Chartered Accountants of India

 (e)

KLA Ma.ks

Wi it b€ advaiag@us to buy Plut A or PlaBt B ? Substanolte vou

al''eer {ith $e help of conpdariae uit cost of thc Pl'nts Assme

inier$ on capital at 10 perce Make other rclevet assumPtions :

Not : 10 Percent interest tabl€s

2Oy.{E 15 Ye.rs
0.1486 0.?i94
'Annuity of I t (caPital r€coverv ftltor
wiit l0% int Est) 0.ll?5 0.1315

(b) Ar importer booLed a foRard @ntrrct wilh hi! balk on 106 APrn fd 9

USD 2,00,000 due on 10o Junc @ I 64 4000 Tle b&k covered it3

posiuon in lhe ndt t at-l 64 2800

The excbange mtes for dollar iI th€ interba'I oa*ei on 106 June and

m6lun€ were :

206 June

spor.\-rsrr I =

July

P.T.O.
XLA

© The Institute of Chartered Accountants of India

 (10)
KLA Msks
Exchdge Margin 0.10% md inleBt on outlay of tulds @ l2%. The
irnpon r rcqucltod o. 20F June fo. exteDsion of contrel with du9 tlate

@ lod August.

(ates rouded ro 4 d@itrEl itr multipl$ of 0.0025.

On tod Iune, Bart Seaps !y sning spot. md buying ole month

flNard.

Cdorhte:
(i) Cdc.llation ratc '

(D AnouDt payable otr $ 2.00,000

(iil) swa! loss

(iv) bteBt od oudly of furds. it e)

(v) New @ntret dL
(vi) Totalcort

5. (a) iBank 'R' es €srablished itr 2m5 ud doins bankins in IDdi& The bant 11

I is fa.ing DO OR DIE situation. Tterc e ptubl9ms.of G-rcs NPA (Notr

i Perfontrilg Asds) at 40% & CAWCRAR (Capital Adequlcy Ralio /

CapiEl Risk wright Ass.t Ratio) ar 4%. The trel wonn ol |he brn! is

noi good. Shares @ not Faded rcgutdly. lr$ weelq it eas tlded @ I 8

RBI Audit suggAt d dbl ba* has

I(LA

© The Institute of Chartered Accountants of India

 {rr)
KLA M8.Ts
Ba* P is prcfsionally oaMged ba* *,th low erc$ NPA of 5%. L
har Net NPA ai 0% dd CAR al 16%. Its shaE is quot d in thc msket

@ a 128 rEr shd€. T1€ toad ofdir€ctos of balk 'P hes sulmioEd a

prcposal ro RBI lor tale ovd ot banl R otr rb. bsis of sbm
erichrnSe ntio.

Th€ Bale@ sh@t details of bob the barl$ are s folows I

Brrk 'R' EaDrP'

140 500

?0 5,500

Delqsitr 4,000 40,0m

Othcr liat'itities E90 25N

Totd Liabfltles 5,100 4E500

ca\hhn blnd & with RBI 400 2,500

Balaie with olhtr balls 2,06

I
1,100 15,000

3Jm 27,W

100 2,000

s,1m 48,500

KLA P.T.O.

© The Institute of Chartered Accountants of India

 (12)

KLA M'rK!
It was <l€.ided to issue shfts at Book Value of B.!L .P' to rhe
shehold€n of Bek 'R'. ALssc lnd liabitities m ,o b€ t keD ovq

For the swap rado, w€ights Nigned to diffeFrr p:tt:rc1e6 e .s

GossNPA aO%

cAR | 20%
MekefPri@ | 4olb

B@k value I roe

(o) \r'brr i! tbe sqap Erio b&ed oD above weiShrs 1

O) How Dmy shaM re b b€ issued ?

(c) Prcpale Balance Sh@l atd mrger.

(d) Calculate CAR & Grc$ NPA % of Ba!* 'P' after nergd.

o) DEF Ltd. ha8 importcd goods to the qt nt of US$ I ciore. The 5

p&yftnt te.ms ar 60 days ir&r€3i-&Ee crcdit. Fd additio&l crcdit of
30 days, iDteet rl th€ nte of 7.75% p.a. will be cbarged.
The banker of DEF Ltd. hax offq€d a 30 days lod * rfi. nre .f
s.5% p.a Their quok fd rhe foeg. exch&ge h a! follos8 :

spor mie INR/us$ a.5o

60 days fward Ele INR IS$ 53.lJ
90 days forward rare INB/us$ 63.45

which o.e of lhe fouowiis opriobs wouJd be berief)

(i)' PaJ Lbe eppliq d 60P dar and avail baII. loe tor l0 da'B

(ii) Avail the sppliels otrer of 90 days credit

KLA

© The Institute of Chartered Accountants of India

 (13)

KI,A
6. (a) R Ltd., reguircs a r.achine for 5 yeus. Th@ ft lwo atre@tivs ei6er 8
to tlke il on l*e or b!y. the @mpmy is Fluct4rl to invest inirial
mourl for the prcjet dd apprcrcher h.ir bekes. Barkd re rady
to nrd@ 100% of it3 initial rqrired uount ar t 5% nre of inter6t for
dy of ihe altemtiv4.

Under l6e option, upfiont Sroity deposn of < 5,001000/- is payable

to l6sor which is €qual to cosr of m&niie_ Our of wbich,40% sball b€

sdjusted equaly againsr onual l€se l€nt. At the erd of life of rh.
mchire, dpeded Bcnp value wil te at b@k vdu€ aner providinS
depr€ciatiotr @ 20% on kitten dom v.lue basis.

Undq buyitrg optid, loan rcpalml is in equd mud irltllrenls of

principal moljn! wbich is equrt ro annual le@ ienr chalgs. Ho\rever

i, (ast of but rlme fo' l€N oprior. €paymsr ot prinqpal uoDl

equal to lease !€nt is adjusted every y@, ed rhe balu@ at ihe end of
,. vA.
Assretbcore tax r,re is 30%, inteBr is payabte at the end of cvery

yelr anq dir.out 6re is @ 15% p.a. Tle folowing discoutirg ferors

2 l
0.8696,. Q.7562 0.6576 0.5718 0.4912

'Which optiotrwouldyou
slgg6tonth€ basb ofn4prerc values ?

I'T,A P-T-O-

© The Institute of Chartered Accountants of India

 04)
IiLA M K'
(b) Thft @ rwo Mutud Fuds vrz. D Munul Fund Lld- and K Muturl 8

Fud Ltd. Each havirs clot€ eoded equily rhemeh.

NAV as d 31'12'2014 oi €quily kh€ms of D Mututl Fund Ltd. is a

70.71 (cotrsisting 99% equity dd rcminine c6h balanc.) and that of K

Munal Fund Ld. ir I62.50 (consistins a equiry ud baloe i!

FoUowing is the olhd infodarioD I

Sharpe Rdio 2 3.3

l5

I1.25

rTh€.rc
is no chege itr pordolios duing the netl motth and an ral

avmge 6r is ? 3 p.r uir for lhe rhelB of both the Murusl Frodr'

I ShN ,{srtel 8G doq by 5% wirbit a Don$. calolale erpectld

NAV atui a hoDth for the !.h€@s of boh the Mutual Fudt.

Fd calculaiion, @Nidd 12 nonths in a yesr md iSdoE runb€r of

days for psniculsr montb.

KLA

© The Institute of Chartered Accountants of India

 :.
(15)
KI-A MA}KS
7. Write sion noles or aly fou of rhe folloyirg : 4x4
(a) Explain the ftming of the folowine relaritrg to Swap transetions |
=16
(i) Plsh Veila Swaps
(ii) Basis Rate Swaps

(u', Ascrswsp.
(iv) ADonisioe SwaF

(b) Djstinction berween Oper dded schms and Closed €d€d lchctus
(c) SIale aly fou sI$mptiotrs of Black Schotes Model

(d) Give tE m@ing of Caps, FlooB od Coltd options with asp€.r to

(e) clobrl d€?ository receiprs

KI,A

© The Institute of Chartered Accountants of India

 (16)
KI,A

KLA

© The Institute of Chartered Accountants of India

 -/ FINAL ll0t ?0tf
Roll No. . GROUP-I PAPER-2
SIRATEGIC FINANC'I/L
Total No. of Questions -7 ' IjIAMGEMEI{T Total No. of printed pages - g
Time Allowed - 3 Hours Maximum Marks - 100

ADI
Answers to questions are to be given only in English except in the case of

candidates who have opted for Hindi Medium. If a candidate has not opted for Hindi

Medium, his/her answers in Hindi will not be valued.

Question No. I is compulsory.

Attempt any five out of the remaining six questions

Wherever appropriate, suitable assumptions should be made and indicated in the

F
i
answer by the candidate

Working Notes should form part of the answer.

Marks

l. (a) Edelweiss Bank Ltd, sold Hong Kong dollar 2 crores value spot to its 5
customer at t 8.025 and covered itself in the London market on the
same.day, when the exchange rates were

US $ I = HK $ 7.5880 -7.5920
Local interbank market rates for US $ were

Spot US $ I - < 60.70 - 61.00

Calculate the cover rate and ascertain the profit or loss on the
transaction. I gnorb brokerage.

ADI P.T.O.
 (2\
ADI Marks
(b) Wonderland Limited has excess cash of t
20 lakhs, which it wants to 5
invest in short term marketable securities. Expenses relating to
.. investment will be { 50,000.
The securities invested will have an annual yield of 9o/o

The company seeks your advice

(i) as to the period of investment so as to eam a pre-tax incbme of

5%.

(ii) the minimum period for the company to break even its investment
expenditure over time value of money.

(c) Elrond Limited plans to acquire Doom Limited. The relevant financial
details of the two firms prior to the merger announcement are :

Elrond Doom
Limited Limited
Market price per share {50 <25
Number of outstanding shares 20 lakhs l0lakhs
The merger is expected to generate gains, which have a present value of
t 200 lakhs. The exchange ratio agreed to is 0.5.
What is the true cost of the merger from the point of view of Elrond
Limited ?
(d) Goldilocks Ltd. was started a year back with equity capital of
t 40 lakhs. The other details are as under :

Earnings of the company { 4,00,000

Price Eamings ratio t2.s
Dividend paid ? 3,20,000

Number of Shares 40,000

Find the current market price of the share. Use Walter's Model.

Find whether the company's D/ P ratio is optimal, use Walter's formula.

ADI
 (3)

. ADI Marks
2. (a) The valuation of Hansel Limited has been done by an investment
6
analyst. Based on an expected free cash flow of ? 54 lakhs for the

following year and an expected growth rate of 9 percent, the analyst has

estimated the value of Hansel Limited to be T I g00 lakh. However, he

committed a mistake of using the book values of debt and equity.

The book value weights employed by the analyst are not known, but

you know that Hansel Limited has a cost of equity of 20 percent and

post tax cost of debt of l0 percent. The market value of equity is thrice

its book value, whereas the market value of its debt is nine-tenths of its

book value. What is the correct value of Hansel Ltd ?

(b) Gretel Limited is setting up a project for manufacture of boats at a cost of l0

{ 300 lakhs. It has to decide whether to locate the plant in next to the sea

shore (Area A) or in a inland area with no access to any waterway

(Area B). If the project is rocated in Area B then Greter Limited receives
a

cash subsidy of t 20 lakhs fiom the Central Govemment. Besides, the

taxable profits to the extent of 20%o is exempt for l0 years in Area B. The

project envisages a borrowing of t 200 lakhs in either case. The rate of

interest per annum is l2To in Area A and l0o/o in Area B.

The borrowing of principal has to be repaid in 4. equal installments

beginning from the end of the 4'r' year.

ADI p.T.O.
 (4)
ADI Marks

Earnings before Depreciation, Intercst and Tax (EBDIT)

i
t

PVIF @ 15% for l0 are as below :

Year I 2 3 4 5 6 7 8 9 l0
PVIF 0.87 0.76 0.66 0.57 0.50 0.43 0.38 0.33 0.28 0.25

3. (a) Gibralter Limited has imported 5000 bottles of shampoo at landed cost
in Mumbai, of US $.20-each. The company has the'choice iil;;;;
for the goods immediately or in 3 months tihe. It has u ct"un ou"ri.afr
limit where p.a. rate of interest is charged.
l4%;o

calculate which of the following method would be cheaper to

Gibralter
Limited.
(i) Pay in 3 months time with interest
@ lo% and cover risk forward
for 3 months.
(ii) Seftle now at a crurent spot rate and pay interest of the overdraft
for 3 months.
The rates are as follow :

Mumbai {/$ spot : 60.25 - 60.55

3 months swap : 35125

ADI
 (s)
ADI Marks
(b) The risk free rate of retum R, is 9 percent. The expected rate of return 8
on the market portfolio R. is 13 percent. The expected rate of growth
for the dividend of Platinum Ltd. is 7 percent. The last dividerd paid on
the equity stock of firm A was { 2.00. The beta of Platinum Ltd. equity
stock is 1.2.
(i) What is the equilibrium price of the equity stock of Platinum Ltd. ?

(ii) - 'How would the equilibrium price change when

. The inflation premium increases by 2 percent ?
. The expected growth rate increases by 3 percent ?
. The beta ofPlatinum Ltd. equityrises to 1.3. ?

4. (a) Beanstalk Ltd. manages its accounts receivable intemally by its sales 12
and credit department. The cost of sales ledger adminishation stands at
II t l0 crores annually. The company has a credit policy of2110, net 30.
Past experience of the company has been that on an average 40 percent
{
of the customers avail of the discount by paying within l0 days while
the balance of the receivables are collected on average 90 days after the
invoice date. Bad debts of the company are currently 1.5 percent of total
sales. The projected sales for the next year are {1000 crores.

Beanstalk Ltd. finances its investment in debtors through a mix of bank

credit and own long term funds in the ratio of 70 : 30. The current cost
of bank credit and long term funds are 13 percent and 15 percent
respectivelY.
With escalating cost associated with the in house management of
debtors coupled with the need to unburden the management with the
task so as to focus on sales promotion, the Company is examining the
possibility of outsourcing its factoring service for managing its
receivable and has two proposals on hand with a guaranteed payment
within 30 days.
'7
The main elements of the Proposal I from Finebank Factors Ltd. are:

' Advance, 88 percent and 84 percent for the recourse and non
recourse arrangements.
. Dfscount charge in advance, 21 percent for with recourse and 22
percent without recourse.

ADI P.T.O.
 (6)

ADI Marks
. Commission, 4.5 percent without recourse and 2.5 percent with
recourse.

The main elements of the Proposal II from Roughbank Factors Ltd. are :

. Advance, 84 percent with recourse and 80 percent without

recourse respectively.

. Discount charge upfront without recourse 2l percent and with

recourse 20 percent.

. Commission upfront, without recourse 3.6 percent and with

recourse 1.8 percent.

The opinion of the Chief Marketing Manager is that in the context of

the factoring arrangement, his staff would be able exclusively focus on
sales promotion which would result in additional sales of 10% of
projected sales. Kindly advice as a financial consultant on the
altemative proposals. What advice would you give? Why ?

(b) Cinderella Mutual Fund has the following assets in Scheme Rudolf at
the close of business on 3l't March,20l4.
Company No. of Shares Market Price Per Share

Nairobi Ltd. 25000 <20

Dakarltd. 35000 t 300

Senegal Ltd. 29000 < 380

Cairo Ltd. 40000 t 500

The total number of units of Scheme Rudolf are l0 lacs. The Scheme

Rudolf has accrued expenses of ( 2,50,000 and other liabilities of

< 2,00,000. Calculate the NAV per unit of the Scheme Rudolf.

ADI
 (7)

ADI Marks

Buenos Aires Limited has l0 lakh equity

shares outstanding at the I
5. (a) price per. share,is
beginning of the year 2013' The current market
( 150. The."rn;;;l; contemptating a dividend of { 9 per share' The
class' is l0%'
rate of capitalizalion' appropriate to its risk
price of the share of
(i) Based on MM approach' calculate the market
the conrPanY when :
(l)
Dividend is declared
(2) Dividend is not declared
the company' under
(ii)How many new shares are to be 'issued by
both the optio*' if the iompany is pfgnn]ng .to invest
uil"t lakhs by the end of
s00 ranrs as'unilng a net income oi < iOO
t
the Year ?
operations for which it 8
(b) Odessa Limited has prop,osed to expand itsexpenses which^amount to
'

."luir". funds ofC-ti -illiott' net of issue

2%o of thei,tu" ti'"'-ft piopot"O to
raise the funds though a GDR issue'
the issue:
It considers the follorving factors in pricing
share is t 300
(D The expected domestic market price ofthe
(ii) 3 shares underlY each GDR
price
(iii) Underlying shares are priced at l07o discount to the market
(iv) Expected exchange rate is t 60/$
GDR's to be issued and
You are required to compute ttt" llT!".1 of
costof GDR ," oi;;iliied' rt 20% dividend is expected to be paid
with a growth rate of 2OVo'

of Cabbage Limited' l0
6. (a) Cauliflower Limited is contemplating acquisition
Cauliflower Lil;;; has 5 lakh shares having
market
"""",o11^191let of
share while d;;;ittt"J rtut r lakh shares having market value
Cauliflower Limited
t 25 per rh""'* il3;Ptior Cabbage Limited andThe managements of
are ( 3 per rtu* unO t 5 per share respectively'
for exchange of
both the .otpunJtlt" discussing twb altematives
shares as follows :
(D ln proportion to relative earnings per share ofthe two companles'
(ii) I share of Cauliflower Limited for two shares of Cabbage Limited' a
Required :

(i) both the altematives'

Calculate the EPS after merger under
(ii) Show the impact on- ef.S fo1. the shareholders
of the two
companies under both the altemattves'
ADI P.T.O.
 (8)
ADI
(b) An investor is holding 5,000 shares of X Ltd. Current year dividend rate 6
is t 3/share. Market price of the share is ( 40 each. The investor is
concerned about several factors which are likely to change during the
next financial year as indicated below :

Current Next
Year Year
Dividend paid/anticipated per share (?) J 2.5

Risk free rate r2% r0%

Market Risk Premium s% 4%

Beta Value 1.3 1.4

Expected growth .to/

9% t/o
In view of the above, advise whether the investor should buy, hold or I

1
sell the shares.
;

7. Write short notes on any four of the following : 4x4

(a) What are the signals that indicate that is time for an lnvestor to exlt a =16
mutual fund scheme ?
(b) What is cross border leasing? State its objectives.
(c) Explain Takeover by reverse bid.
(d) What are the risks to which foreign exchange transactions are exposed ?
(e) Explain the term "Insider Trading" and why Insider Trading is
punishable ?

ADI