[This question paper contains 3 pages]

Unique Paper Code : 61017925

Name of Paper : Investment Banking and Financial Services
Name of Course : Bachelors of Management Studies (BMS)
Semester : VI
Duration : 2 Hours
Maximum Numbers : 75 Marks

Instructions for Candidates:

1. This paper contains 6 questions. Attempt ANY FOUR questions.
2. All questions carry equal marks.
Q1. Shah and associates is a popular financial services firm based in Gujarat offering a range
of financial products. They have good contacts in the industry and their net worth has
increased multiple times in the past 25 years of their operation. As the next generation of the
family takes the mantle, they decide to venture into merchant banking to take advantage of
their goodwill amongst both public and industry. You have been hired as a consultsnt by
Shah Financials (now a registered Merchant Banker). As the firm ventures into managing its
first IPO manadate, explain the key obligations and responsibilities of lead managers of the
issue to Shah and associates and also the importance of continuance of association of lead
manager with an issue.

Q2. Karma Connect is a telecom equipment firm which is a listed public limited company.
The firm needs Rs 75 crores to expand its operations. List out and explain the various
primary market alternatives available to the firm to fulfil its requirement. Also guide the firm
about the best option for them under the present circumstances.

Q3. A firm XYZ Ltd. is considering two options for an equipment having purchase price of
50, 00,000 – First, Amount can be borrowed at 20% p.a. repayable in 5 equal instalments, and
Second, the equipment can be leased for a period of five years at the year-end rentals of Rs.
12,00,000. Depreciation is allowed on written down value method at 25%. The Corporate tax
rate is 50%. The asset will have a salvage value of 500,000. Advise the company about lease
or buy decision.

The present value of Re. 1 at 20% discount factor is: 1st year – 0.833, 2nd year – 0.694, 3rd
year – 0.579, 4th year – 0.482 and 5th year – 0.402. The present value of an annuity of Re. 1
at 20% p.a. for 5 years is Rs. 2.991.

Q4. The annual credit sale of Xerox Co Ltd. were Rs. 48,00,000. The Company offers credit
sale of three month credit to its customer. The administrative cost for collection of bills
amounts to Rs. 10,000 per month. Presently, bad debts amount to 2 percent of total credit
sales.

Under a factor financing, (non-recourse) Atom Factors Ltd. agreed to advance 75 percent
against the bills at interest of 14 percent p.a. and fees of 5 percent on targeted collection.

Calculate the amount actually made available to Xerox Co Ltd. and the effective cost of funds
made available to Xerox Co ltd.
Q5. Securitisation has emerged as an effective financial arrangement for many firms. Explain
the concept and process of Securitization and various entities involved in this process.

Q6. Explain the process of bought out deal.

Novice Industries Ltd has decided to increase its existing share capital by making rights
issue to the existing shareholders in the proportion of one share for every four shares held.
You are required to calculate the value of the rights if the market value of the shares at the
time of announcement of rights issue is Rs. 60. The company has decided to give one share of
Rs. 12 each at a premium of Rs. 16 each.