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(A). (1).Mr. Nimish holds the
following portfolio. (10 marks)
Share Beta Investment
Alpha 0.9 Rs.12, 00,000
Beta 1.5 Rs. 3, 50,000
Carrot 1.0 Rs. 1, 00,000
What is the expected rate of
return on his portfolio, if the risk rate is 7 per cent and the
expected return on the market
portfolio is 16 per cent?
(A). (2). A share is selling
for Rs.60 on which a dividend of Rs.4 per share is expected at the end of the
year. The expected market price after dividend declaration is to be Rs.70.
Compute the following: - (10 marks)
(i) The return on investment ®
in shares.
(ii) Dividend yield
(iii) Capital Gain Yield
(B) DIC Ltd. provides the
following data: (20 marks)
Comparative trial balance
March 31 year 2 March 31 year 1
Increase(Decrease)
Debit Balance 20 10 10
Cash Rs.190 Rs. 90 Rs.100
Working capital (other than cash)
100 200 (100)
Investment (Long term) 500 400
100
Building and equipment 40 50
(10)
Total 850 750 100
Credit
Accumulated Depreciation 200
160 40
Bonds 150 100 50
Reserves 350 350 ---
Equity Shares 150 140 10
3
Total 850 750 100
Income Statement
For the period ending March 31,
year 2
(Amount in Rs lakh)
Sales Rs.1000
Cost of Goods Sold 500
Selling Expense Rs.50
Administrative Expenses 50 100
Operating Income 400
Other charges
Gain on sale of building and
equipment Rs 5
Loss on sale of investments
(10)
Interest (6)
Taxes (189) (200)
Net Income after taxes 200
Notes: (a) The depreciation
charged for the year was Rs.60 Lakh
(b) The Book value of the
building and equipment disposed was Rs 10 Lakh
(c)Prepare a Cash Flow Statement
(Based on AS-3)
(C). (1). A. Ltd. produces a
product which has a monthly demand of 4,000 units. The product
requires a component X which is
purchased at Rs.20. For every finished product one unit of
component is required. The
ordering cost is Rs.120 per order and the holding cost is 10 per
cent per annum. (10 marks)
You are required to calculate:
(i) Economic order quantity
(ii) If the minimum lot size to
be supplied is 4, 000 units, what is the extra cost, the
company has to incur?
(iii) What is the minimum
carrying cost, the company has to incur?
4
(C). (2). 4. Master Tools Ltd.
Is currently operating its business at 75% level, producing 38275 units of
a tools component and proposes
to increase capacity utilization in the coming year by 33 1/3 % over the
existing level of production.
(10 marks)
The following data has been
supplied:
(1)Unit cost structure of the
product at current level:
Rs.
Raw Material 5
Wages 2
Overheads 3
Fixed Overhead 2
Profit 3
_____
15
(i) Raw Material will remain in
stores for 1 month before issued for production. Material will
remain in process for further 1
month. Suppliers grant 4 months credit to the company.
(ii) Finished goods remain in
godown for 2 months
(iii) Debtors are allowed
credit for 2 months.
(iv) Lag in wages and overheads
payments in 1 month, and these expenses accrue evenly
throughout the production
cycle.
(v) No increase either in cost
of inputs or selling price is envisaged
You are required to prepare a
Projected Profitability statement and the Working Capital
Requirement at new level,
assuming that a minimum cash balance of Rs.20000 has to be maintained.
(D). A stock is currently
trading for Rs.29. The risk less interest is 7 % p.a continuously
compounded. Estimate the value
of European call option with a strike price of Rs.30 and a time
of expiration of 4 months. The
standard deviation of the stock’s annual return is 0.45. Apply BS
model. (20 marks)
5(E). Following is the EPS
record of AB Ltd over the past 10 years. (20 marks)
Year EPS Year EPS
10 Rs.30 5 Rs.16
9 20 4 15
8 19 3 14
7 18 2 18
6 17 1 (12)
(i) Determine the annual
dividend paid each year in the following cases:
(a) If the firm’s dividend
policy is based on a constant dividend payout ratio of 40 per cent
for all years
(b) If the firm pays at Rs 10
per share, and increases it to Rs 12 per share when earnings
exceed Rs.14 per share for the
previous 2 consecutive years.
(c) If the firm pays dividend
at Rs 7 per share each except when EPS exceeds Rs 14 per
share, when an extra dividend
equal to 80 per centof earnings beyond Rs.14 would be
paid.
(ii) Which type of dividend
policy will you recommended to the company and why?
(F). (1). A US MNC has its
subsidiary in India. The subsidiary has issued 15 pr cent preference
shares of the face value of
Rs.100, to be redeemed at year-end 9. Flotation costs are expected tobe 5 per cent; these costs can
be amortized for tax purpose during 8 years at a uniform rate.The corporate tax rate is 35
per cent. Determine the costs of preference shares from the
perspective of the subsidiary.
(10 marks)
(F). (2) The US inflation rate
is expected to be Rs.3 per cent annually and that of India is
expected to be 4.5 per cent
annually. The current spot rate of US $ in India is Rs.47.4060/US $.
(10 marks)
Find the expected rate of US $
in India after one year and after 5 years from now using
purchase power theory of
exchange rate.
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