JAIPURIA INSTITUTE OF MANAGEMENT, NOIDA

PGDM / PGDM (M) / PGDM (SM)

THIRD TRIMESTER (Batch 2020-22)
END TERM EXAMINATIONS, May 2021
Set-2 (Reappear)

ADVANCED CORPORATE
Course Name Course Code
FINANCE G/S/M/FIN301
Max. Time 2 hours Max. Marks 40
1.This question paper is to be attempted on Moodle platform, with each question on a separate excel sheet in this file.
2.Answer each question below the data provided duly marking beginning and end of the answer.
3. Answers to the questions will be plagiarism checked on assignment basis in moodle with limit of 10% . Every additional 10% will attract a penalty of 5 marks.

Roll number

Q No. 1 2 3 4 5 Total
Maximum marks 10 10 4 4 12 40
Marks obtained
Q1 10 marks
Akshat and Co. is planning to expand with a project costing Rs2000000.
The project has estimated cashflows in years 1 to5 and certainty coefficients as given in the table below.

Cash flows in Certainty

Year
Rs Coefficient
1 500000 0.8
2 800000 0.6
3 890000 0.7
4 1200000 0.3
5 1440000 0.4

If the risk free rate of return is 6% p.a., evaluate certain cashflows and recommend whether the project should be accepted. (5+5 Marks)
Q2 10 Marks

Q4. Vipul Auto, a large automobile company, is evaluating the possible acquisition of Moon Technologies, an
auto-ancillary company in the year 2020. Vipul’s analysts project the following post-merger free cash flows of
Moon technologies (assume all the cash flows occur at the end of the year):

Free cash flow to firm in upcoming years (in Crores, Rs.)

2021 2022 2023 2024 2025
40 45 46.25 49 56

The other required data for the valuation of equity of Moon Technologies follows:

Key inputs of Moon Technologies

Initial debt 350 Crores
Pre-merger value of shareholders' funds 700 Crores
Number of shares outstanding 20 Crores
Tax rate (For the valuation period) 30%
Longterm growth rate (2026 till infinity) 6%

Risk-free rate of return 5%

Market risk-premium 10%
Cost of Debt (before tax) 8%
Beta 1.30

Determine, for use and application of discounting free cash flow to firm (FCFF) method (or corporate free
cash flow model):
i). Cost of equity, cost of debt after-tax, and Weighted Average Cost of Capital (WACC) (3 Marks)
ii). Horizontal/terminal value of Moon Technologies at the end of 2025. (2 Marks)
iii). Value of Moon Technologies equity assuming non-operating assets are zero. (3 Marks)
iv). Value per share of Moon Technologies equity. (2 Marks)
Q3 4 Marks

The current market price of Omega Ltd share is Rs210.

You are bullish for the stock and holding call option of 1600 Omega shares expiring in July 2021, at a premium of Rs2.75 per
share, for the strike price of Rs215.
Evaluate your net payoff (after deducting option premium) if the price of Omega share on the expiry date turns out to be
Rs208, 218, 230 or 195 .
Show your calculations in details. (4 Marks)
Q4 4 Marks
Mohan Imports have to make a payment of GBP100000 after 3 months.
Spot rate of INR/GBP is 103.31-103.43.
Inter bank interest rate applicable to 3 months period is 5.4% p.a. in India and 3.45% p.a. in UK.
Banks quote forward rates computed by using the interest rate parity formula:
Forward rate = Spot rate X (1+Indian interest rate)/ (1+ UK interest rate).
Demonstrate the amount payable by Mohan Imports after 3 months under forward contract booked now. (2 marks)
Show gain/ loss if the spot rate in INR/GBP turns out to be 104.12 or 103.85 after 3 months. (2 Marks)
Q5 12 Marks

Explain with examples (in around 200 words) (4*3=12 Marks)

i). Sensitivity analysis in capital budgeting
ii). Valuation of Bonds
iii). Friendly/ Hostile takeovers
iv). Risk management using Interest Rate Swaps