Biz.

Finance Assignment 1- Sabyasachi Rathore

1) I believe that rules are needed for corporate behaviors since by establishing
expectations and strict guidelines to work according to hereby ensuring
proper order and conduct to meet the company’s expectations.

B) ​ Bills of exchange features-

● It is a monetary instrument issued by the creditor to the debtor.

● It has a specified term or period.
● It must be in writing.
● The bill can be discounted with the bank by the business.
● It must include an order to pay.
● It can be endorsed by the creditor to his debtors.

2)

a) The responsibility of Central banks is to oversee the monetary system for a

nation, along with other responsibilities like overseeing monetary policy to
implement specific goals such as currency stability, low inflation, and full
employment.

They carry out a nation's monetary policy and control its money supply, often
mandated with maintaining low inflation and steady GDP growth. They also
influence interest rates and participate in open market

b) Net Asset Value (NAV) is the market value of a mutual fund unit. The overall
cost of a mutual fund depends on this market value per fund unit.

By comparing the Net Asset Value of two Mutual funds.

Some key Features are:

● Benchmark
● Investment Horizon
● Expense Ratio
● Underlying securities and industries
● Risk factor

3)

a) ​Factors considered while distributing dividends are: -

● Stock markets
 ● Cash reserves
● Tax
● Growth opportunities
● Stability and consistency
● Use of dividends in equity valuation

b) Bonus debentures can be issued to shareholders in the ratio of 1:1. Instead of

issuing bonus shares and reducing the market price, the bonus debenture is a
better way of rewarding shareholders without diluting the price. By this the
company advantage is that issuing genuine value addition to shareholders, these
bonus debentures will carry interest and will also be redeemed on the completion
of their tenure. Or by other methods:

● share buyback
● stock dividend

4) A​ lternative 1:​ ​Investible amount after capital gains tax= INR 4.5 million
80% = INR 3.6 million

Number of shares of Ranveer Pvt Ltd purchased = INR 3.6 million + INR
120/share = 30,000

Face value of the Shares INR 100 × 30000 = INR 3 million

Annual dividend = 12%

3 million × 12% = INR 0.36 million

Sale proceeds of the shares after 3 years = 30000 share × INR 150/share = INR
4.5 million

Present value of the investments = (0.36v + 0.36v² + 0.36v^3) + 4.5v3 =

INR 5.39 million

Alternative 2:​ ​Interest receivable after every 6 months = INR 4.5 million x 3%
= INR 0.135 million

Tax payable at the end of each year = INR 4.5 million x 6% x 10%

= INR 0.027 million

Maturity proceeds received = INR 4.5 million x 105% = INR 4.725

million

Present value of the investment = (0.135v0.5 + 0.135v +

0.135v1.5 + 0.135v2 + 0.135v3+ 0.135v4) – (0.027v + 0.027v +

0.027v) +4.725v = ​INR 4.3907 million

Hence, Alternative 1 is a better option to go with.

5) a) The Board should offer a share buyback to the existing equity

shareholders How it helps meet desired objectives:

● Cash pile offloaded

● Reduction in equity will increase gearing
● Two key stakeholders can invest in other opportunities available
with cash received

b) Share buyback could be achieved in the following ways:

● A fixed price offer

● A tender price (uniform price)
● Repurchase by direct negotiation with a major shareholder

c) Taxation of Capital gains is an important consideration for minority

shareholders to consider whether to offer their shares for buyback.

6)

a) The current worth of 5 shares is =

Rs 200 per share X 5 = Rs 1000

The expansion plan will increase the value of company by 25% so

the shares would

increase in value to

Rs 1000 *1.25 = Rs 1250

The cash injection would further add Rs 175 to the value per share
=>
 Rs 1250 + 175 =

Rs 1425

The value of each share would be =

Rs 1425/ 6 = Rs 237.5

b) Effective conversion price

= ​Rs 50/4 = Rs 12.5

The conversion premium is the effective conversion price minus

current share price.

= Rs 12.5 – Rs 9 = Rs 3.5

7)

a) Going concern​ - An accounting term for a company that has the

resources needed to continue operating indefinitely until it provides
evidence to the contrary. This term also refers to a company's ability to
make enough money to stay afloat or to avoid bankruptcy.

b) ​Conditions that lead to substantial doubt​ about a going concern

include negative trends in operating results, continuous losses from one
period to the next, loan defaults, lawsuits against a company, and denial of
credit by suppliers.

8)

a) M​ oney Market​ - a section of the financial market where financial

instruments with high liquidity and short-term maturities are traded.

b) ​Central banks​ are responsible for overseeing the monetary system for a
nation, along with other responsibilities like overseeing monetary policy to
implement specific goals such as currency stability, low inflation, and full
employment.

9)

a)​ ​Investment Bank

· ​Role: ​Advice Companies and help companies raise finance.

 ● ​ ources of Funds: ​Invest in bills and provide loans and leases to
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companies.
● ​Application of Funds: ​Receive fees for advice, underwriting
commission, fund management, Eurobond dealing, trusteeship, and bill
acceptance. Borrow money by running banking accounts and issuing
certificates of deposit.

b)​ ​Pension Scheme

● ​Role: ​Channel savings for retirement into long term capital markets
● ​Sources of Funds: ​Typical fund invests in equities and longer dated
loan securities and company debt. Also some investment in overseas
securities. Small proportion of the assets invested in property, money market
investments and index linked gilts and other classes, such as commodities and
infrastructure, are becoming more common.
● Application of Funds​: Contributions from employers and employees
only. No borrowings.

c)​ ​Life Insurance Company

● ​ ole:​ Pool mortality and investment risks by channelling savings into

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long term capital markets.
● ​Sources of Funds: ​Typical fund invests in a mixture of equities and
short and long fixed interest securities. May have some investment in overseas
securities, property, money market investments and index-linked gilts.
● Application of Funds: ​Premium income from policyholders. Do not
usually borrow money.

Q11.
1. Financial regulations are laws and rules that govern financial institutions.
Regulations of financial institutions focus on providing stability to the
financial system, fair competition, consumer protection, and prevention and
reduction of financial crimes.
2. Financial Regulatories in India-
a. Reserve Bank of India(RBI)
b. Securities Exchange Board of India(SEBI)
c. Insurance Regulatory and Development Authority of India(IRDAI)
d. Forward Market Commission of India(FMC)
e. Pension Fund Regulatory and Development Authority(PFRDA)
3. Regulators that supervise these-
a. Banks- RBI
b. Superannuation Products- PFRDA
 c. General Insurance Companies- IRDAI
d. Stock Brokers- SEBI
e. Mutual Funds- SEBI
f. Market for listed Securities- SEBI
g. Foreign Exchange Dealers- RBI
h. Money Changers- RBI

Q12.
1) Investment banks act as intermediaries between investors (who have money
to invest) and corporations (who require capital to grow and run their
businesses). An investment bank is usually involved when a startup company
prepares for its launch of an initial public offering (IPO) and when a
corporation merges with a competitor.
2) Roles of an investment bank-
○ Investment banks are best known for their work as intermediaries
between a corporation and the financial markets.
○ The investment bank is responsible for examining a company’s
financial statements for accuracy and publishing a prospectus that
describes the offering in detail to investors before the securities are
available for purchase.
○ They arrange debt financing for corporations by finding large-scale
investors for corporate bonds.
○ Advisory roles for both buyers and sellers of businesses, managing the
M&A process start to finish.
○ Managing investments for a wide range of investors including
institutions and individuals, across a wide range of investment styles.
3) Sources of funds-
○ Investment banks earn commissions and fees on underwriting new
issues of securities via bond offerings or stock IPOs.
○ Investment banks often serve as asset managers for their clients as
well.
○ Investment banks sometimes partner with or create venture capital or
private equity funds to raise money and invest in private assets.
○ Gains from proprietary trading.
Application of funds-
1) With proprietary trading, the investment bank deploys its own capital
into the financial markets. Traders that risk the firm's capital are
typically compensated based on performance, with successful ones
earning large bonuses and unsuccessful traders losing their jobs.