O.P.

Jindal Global University

Jindal School of Banking & Finance
End-term Examination

Course Name : Corporate Finance

Course Code : BFC-01-BCM-FNE141
Programme : B. Com. (Hons.)
Session : Spring 21
Time Allowed :
Maximum Marks : 50

General instructions
i. Use the last three digits of your JGU Id wherever ‘@#$’ appears in the questions. For
example, if your JGU Id is 2720090026, @#$ will take the value 026, i.e.
replace/substitute @ with 0, # with 2 and $ with 6. Similarly, #$ will take the value
26 and $# will take the value 62.

2 7 2 0 0 9 0 0 2 6
- - - - - - - @ # $

ii. Your answers will be evaluated as per your official JGU Id, therefore, ensure that you
do not assume any other value/number. If you assume any other JGU ID you will
score zero in question/exam.
iii. Marks will not be awarded if you copy from your classmates.

Instructions for submission

I. Click legible pictures of your work and paste them into MS Word file. You can also
scan your answers and submit a pdf file. If the evaluator can’t read your answer
script, he or she cannot evaluate your paper.
II. You should submit only one file/document.
III. If you use a digital notebook, you can also solve questions on it and then paste the
screenshots/images on the word file or submit a pdf file.

Warning: Plagiarism in any form is prohibited. Anyone found using unfair means
will be penalized severely.

1
Attempt all questions.

Note: Write the logic and steps you take to arrive at your answer. Marks will not be
awarded for merely writing the correct values.

1. You are scheduled to receive Rs. 380,000 in two years. When you receive it, you will
invest it for six years at 7.3 percent per year. You withdraw 50% of the maturity
amount for personal use at the end of the 8th year and then invest the remaining
amount at 9.3 percent for 8+1 years. How much you will have in your account in the
end? 3+1+3 Marks
(7 Marks)

2. Suppose you are going to receive Rs. 83,800 per year for five years. The appropriate
interest rate is 7.3 percent.
a. What is the present value of the payments if they are in the form of an
ordinary annuity? What is the present value if the payments are an annuity
due? 2 Marks
b. Suppose you plan to invest the payments for five years. What is the future
value if the payments are an ordinary annuity? What if the payments are an
annuity due? 2 Marks
c. Which has the highest present value, the ordinary annuity or annuity due?
Which has the highest future value? Will this always be true? 3 Marks

(7 Marks)

3. Suppose you are a relationship manager at an international bank. A customer who

recently got admission at a prestigious Business School approached you for an
education loan of Rs. 38,00,000. Your bank offers the education loan at 9.8 percent to
be repaid in 10 years in EMIs. You are assigned the task of preparing the amortization
schedule for the customer and answer the following.
a. Prepare the amortization schedule for the first 5 EMIs. 5 Marks
b. What will be interest paid for 93th EMI? 2 Marks
c. What will be the loan balance after 93th EMI? 3 Marks
d. What is the total interest paid for the loan? 2 Mark
(12 Marks)

4. Both Bond Sam and Bond Dave have 6.3 percent coupons, make semiannual
payments, and are priced at par value of Rs. 1000. Bond Sam has 13 years to
maturity, whereas Bond Dave has 48 years to maturity.
a. If interest rates suddenly rise by 2 percent, what is the percentage change in
the price of Bond Sam? Of Bond Dave? 2 Marks
b. If rates were to suddenly fall by 2 percent instead, what would the
percentage change in the price of Bond Sam be the percentage change in the
price of Bond Sam be then? Of Bond Dave? 2 Marks
c. What does your result in part (a) and (b) tell you about the interest rate risk
of bonds? 3 Marks
(7 Marks)

2
 5. Consider the following two mutually exclusive projects:

Year Cash Flow (X) Cash Flow (Y)

0 -24,083 -24,083
1 10,320 12,083
2 10,900 9,360
3 10,800 10,400

a. Sketch the NPV profiles for X and Y over a range of discount rates from zero
to 25 percent (take 0%, 5%, 10%, 15%, 20%, 25%). 4 Marks
b. Calculate the IRR of the projects. 1 Mark
c. What is the relationship between NPV and IRR for your values? 2 Marks
d. What is the crossover rate for these two projects and what it indicates for
your values? 1+2 Marks
(10 Marks)

6.
Profit Total asset Equity
  margin (%) turnover multiplier ROE
Company A  
2018 33.2 0.345 1.20  
2019 29.5 0.408 1.28  
2020 38.9 0.330 1.13  
Company B        
2018 38.9 0.483 1.30  
2019 33.5 0.380 1.23  
2020 26.2 0.438 1.38  

a. Calculate ROE for both companies and interpret your answer. Which
company will you prefer for investment in 2018, 2019 and 2020? Explain 2
Marks
b. Interpret the values in profit margin, total asset turnover and equity
multiplier. Will your investment decision for 2018, 2019 and 2020 change
once you use DuPont identity instead of ROE? Explain 2+3 Marks

(7 Marks)