[1-DL-5]

Calculate the cash flow from assets of the Gandi Enterprises for the year 2013.

(A) Cash flow from assets is $810.

(B) Cash flow from assets is $4,350.
(C) Cash flow from assets is $560.
(D) Cash flow from assets is $2,980.

Answer: A

[2-DL-5]

Financial statements of S Inc are given above. Sales for the 2017 are projected to grow
by 20%. Costs of goods sold, other operating expenses, current assets, accounts payable,
and fixed assets are increasing with sales. If the firm is operating at full capacity and no
new debt or equity is issued. Interest expenses, tax rate, and dividend payout ratio are
constant. Calculate the external financing needed to support the 20% growth rate is sales.

(A) External funds needed is $5,500.75.

(B) External funds needed is $6,954.65.
(C) External funds needed is $7,423.85.
(D) External funds needed is $7,500.25.

Answer: C
[3-DL-5]

Following are the particulars of EFG Ltd.:

The depreciation incurred and capital expenditure are equally offset in future and 30% of
debt is expected to be paid in 2015. Calculate the value of the firm when cost of equity
16%.

(A) Value of the firm is $1715.53.

(B) Value of the firm is $2543.35.
(C) Value of the firm is $2205.98.
(D) Value of the firm is $1,914.83.

Answer: D

[4-DL-5]

PQR Ltd. is considering an equipment of $1,680,000, has a life of six year, and
depreciation is straight line to zero over the use life of the project. Salvage value of the
equipment is zero at the end of the project. Data of sales, price per unit, variable cost per
unit and fixed cost is provided in the table below.

Sales units, price, variable cost and fixed cost are all accurate to within  5%. Calculate
the net present value (NPV) under worst case scenario, when required rate of return is
12% and tax rate is 30%.

(A) Worst case NPV is -$210,023.54.

(B) Worst case NPV is -$151,216.28.
(C) Worst case NPV is -$1,974,895.23.
(D) Worst case NPV is -$875,003.25.

Answer: B

[5-Dl-5]

A mutual fund investor with portfolio consist of the stock fund, the corporate bonds, and
the T-bills with rate of return is 3.5%. The probability distribution of the risky funds is:

Calculate the standard deviation for the minimum variance portfolio of the two risky
funds.

(A) Standard deviation is 28.35%.

(B) Standard deviation is 31.30%.
(C) Standard deviation is 11.22%.
(D) Standard deviation is 12.92%.

Answer: A

[6-Dl-5]

P is required to pay $300,000 in 1year, forward rate 1$=₹65 and spot rate 1$=₹60.

Calculate the amount payable under money market hedge.

(A) Amount payable is ₹ 17,829,383.89.

(B) Amount payable is ₹ 19,500,000.00.
(C) Amount payable is ₹ 18,000,000.00.
(D) Amount payable is ₹ 19,315,165.88.
Answer: C

[7-Dl-5]

By using the following information, calculate the value of call option using Risk Neutral
method.

Note: e  1.0202
0.02

(A) The value of call option is $35.05.

(B) The value of call option is $27.92.
(C) The value of call option is $13.96.
(D) The value of call option is $56.08.

Answer: C

[8-Dl-5]

PQR Ltd. is planning to invest in USA and following are the cash flows which are
generated in USA.

The real rate of return is 10% and inflation rate of return is 5%. Calculate the NPV in
rupees when forward rate for three years is 1$ = ₹50 and spot rate is 1$ = ₹48.

(A) The net present value is ₹377.7611 lakhs.

(B) The net present value is ₹756.8513 lakhs.
(C) The net present value is ₹3.4289 lakhs.
(D) The net present value is ₹20.5868 lakhs.

Answer: D

[9-Dl-5]

Mr. P. decides to short sell 10000 shares of Chegg Inc. at that time market price was $5.6.
His broker charged $1550 as commission and requested him to deposit 45% margin.
During the short period Chegg Inc paid a dividend of $0.25 per share. To close out the
position Mr. P buys 10000 shares of Chegg Inc. at $4.50 and broker charged a
commission of $1,450. Calculate the return on the investment of Mr P.

(A) The return on investment is 20.56%.

(B) The return on investment is 21.83%.
(C) The return on investment is 41.67%.
(D) The return on investment is 18.75%.

Answer: A

[10-Dl-5]

A mutual fund investor with portfolio consist of the stock fund, the corporate bonds, and
the T-bills with rate of return is 5%. The probability distribution of the risky funds are:

Calculate the expected rate of return for the optimum variance portfolio of the two risky
funds.

(A) Expected rate of return is 48.10%.

(B) Expected rate of return is 17.77%.
(C) Expected rate of return is 11.53%.
(D) Expected rate of return is 34.40%.

Answer: B
[11-Dl-5]

By using the following data of PQR and LMN. Calculate the variance of PQR and
average return of LMN.

(A) Variance of PQR is 0.22585 and Average return of LMN is 13.44%.

(B) Variance of PQR is 0.22585 and Average return of LMN is 9.00%.
(C) Variance of PQR is 0.82367 and Average return of LMN is 13.44%.
(D) Variance of PQR is 0.82367 and Average return of LMN is 9.00%.

Answer: A

[12-DL-5]

M Inc. has no debt outstanding and has a total market value of $180,000. Under normal
conditions earnings before interest and taxes (EBIT) are projected to be $28,000. Under
expansion EBIT will be 14% higher and under recession EBIT will be 25% lower. M Inc
is considering repurchase of the stock by issuing the 8% debt of $90,000. Current
outstanding share of the company are 10,000. Calculate the percentage change in EPS
under expansion and after recapitalization the percentage change in EPS under recession?
Consider a tax rate of 25%.

(A) Change in EPS under expansion 14% and after recapitalization change in EPS
under recession -19%.
(B) Change in EPS under expansion 25% and after recapitalization change in EPS
under recession -19%.
(C) Change in EPS under expansion 14% and after recapitalization change in EPS
under recession -34%.
(D) Change in EPS under expansion 25% and after recapitalization change in EPS
under recession -34%.

Answer: C

[13-DL-5]

There are two alternatives of capital structure available for the firm, one is to have
$500,000 equity share capital and 11% debentures of $300,000. The other alternative is to
have equity share capital of $400,000; 13% preference share capital of $200,000; and
11% debentures of $300,000. The tax rate is 30% and the par value per equity share is
$10. Calculate the earnings before interest and taxes at which earnings per share is
indifferent among the above alternatives.

(A) $177,230
(B) $163,000
(C) $540,000
(D) $206,000

Answer: B

[14-DL-5]

Company MN’s managers wants to know the best estimate of cost of equity of the
company.

Following is the information available:

The earnings per share of the company is $30 and the company pays out 25% of its
profits as dividends. The implied growth rate is 15%. The beta of the firm is 1.87 with
risk free rate of 4.8% and the expected market return is 18.5%.

The return on bonds of the company is 7%. (The cost of equity can be obtained by using
mid-point from the range of judgmental risk premium and own bond yield).

Calculate the best estimate of cost of equity.

(A) 30.419%
(B) 11.00%
(C) 20.473%
(D) 20.710%

Answer: C

[15-DL-5]
Company ABQ made sales revenue of $945,000 recently with $35,000 of costs incurred.
The depreciation of the company’s assets is $50,000 and falls under 40% tax slab. It has
8% of interest on debt of $30,000. The company also pays an annual dividend of $1.90
per share. The total shares outstanding are 25,000 which includes 3,000 of treasury
shares.

Calculate the EPS and dividend payout ratio of the company.

(A) EPS: 23.39, dividend payout ratio: 8.12%

(B) EPS: 23.45, dividend payout ratio: 8.10%
(C) EPS: 23.59, dividend payout ratio: 8.05%
(D) EPS: 20.76, dividend payout ratio: 9.15%

Answer: A

[16-DL-4]

Calculate the price of the stock today from the following information provided.
The firm ABC Ltd. has just paid a dividend of $5 per share and is expected to grow at a
rate of 15% of the next 4 years and thereafter 6% forever. The risk-free rate of return is
5%. The beta of the stock and the market risk premium are 2 and 5.5 respectively.

(A) The price of the stock today is $70.77.

(B) The price of the stock today is $92.69.
(C) The price of the stock today is $63.71.
(D) The price of the stock today is $68.22.

Answer: A

[17-DL-4]

The firm uses debt and equity in its capital structure. It has a debt-equity ratio of 0.75.
The cost of equity is 10% and the cost of debt (before tax) is 12%. The firm is
considering a project of purchasing a machinery that would incur an initial investment of
$40 million. The after-tax salvage value of the machinery at the end of year 6 is $5
million. The project requires an initial net working capital of $2 million at the end of year
0. The project provide cash inflows as follows:

Year Cash inflows ($ in millions)

1 8
2 10.5
3 9.75
4 12
5 8
6 5

The tax rate is 35%. Calculate the NPV of the project.

(A) $1.29 million.

(B) -$3.29 million.
(C) $2.48 million.
(D) -$0.49 million.

Answer: C

[18-DL-4]

Calculate the cash cycle from the following information provided.

Particulars Amount in ($)

Sales (70% are credit sales) $3,650,000
Gross profit $830,000
Opening inventory $600,000
Closing inventory $700,000
Accounts receivable $4,35,000
Accounts payable $250,000

Number of days in a year is 365 days.

(A) 178.6 days.

(B) 113.88 days
(C) 76.74 days
(D) 95.24 days

Answer: B

[19-DL-4]

Calculate the WACC using the of the firm from the following data provided:

Source of capital Amount in $

Equity share capital 1,500,000
Preference share capital 1,000,000
Debt A 750,000
Debt B 250,000
Total 3,250,000

The expected dividend for the next year is $2. The equity shares have floatation costs of
$5. The market value of equity shares is $25 per share.

The firm issued the preference dividend of $15 per share with a face value $100 would
realize $ 105 per share.
The before-tax cost of debt A and Debt B are 10% and 12% respectively. The tax rate is
30%.

(A) 10.47%
(B) 7.35%
(C) 10.05%
(D) 14.29%

Answer: A

[20-DL-4]

Consider a 1-year treasury bills currently earns 3.25%. The increase in rates for the above
bill is shown as follows:

Year Increase in rate

1 year from now 3.6%
2 years from now 3.85%

The liquidity premium is as follows:

2-year securities 0.07%

3-year securities 0.15%

Assume that if the liquidity premium theory is correct. Calculate the current rate on 3-
year Treasury securities.

(A) 3.46%
(B) 3.64%
(C) 3.85%
(D) 0.15%

Answer: B

[21-DL-4]

The financial manager of ABC Ltd is considering buying an asset. His senior manager
suggests leasing the asset instead of buying it. So, now the company has two options.

Buying the asset:

For buying the asset, a bank loan of $1,000,000 needs to be taken @ of 15%. The
monthly installments will be $200,000 per year (excl. interest). The machinery is
depreciated @ 20% on straight-line basis.

Leasing the asset:

For leasing the asset, the annual rentals of $3,48,000.

Calculate the present value of cashflows and choose which of the options is
recommended to the finance manager, if the tax rate is 30% and the cost of capital is
12%.

(A) Leasing, as the net cash outflow is $878,124.41

(B) Buying, as the net cash outflow is $8,21,683.52
(C) Leasing, as the net cash outflow is $658,549.23
(D) Buying, as the net cash outflow is $748,832.83

Answer: D

[22-DL-4]

A Ltd is planning to acquire B ltd. The firm A has profit after tax of $6,000,000 with
1,000,000 shares of equity, each has a market price of $200 per share.
Firm B has the profit after tax of $1,000,000 with 250,000 shares of equity, with a market
price of $160 per share. Exchange ratio is based on the market price of the stock.
Calculate the EPS of A Ltd after the merger and the market value of A ltd after merger.

(A) 5.833 per share and the market value is $240 million
(B) 4.859 per share and the market value is $240 million
(C) 5.833 per share and the market value is $120 million
(D) 4.859 per share and the market value is $120 million

Answer: A

[23-DL-4]

The exchange rates are £0.6139/$ and $1.3939/£. A payment of $2,000 is to be made to a
resident in U.K. How many pounds will the U.K resident receive? The interest rate in US
is 4% and in UK is 4.5%. The spot market rate is $1.77, and the forward rate is $1.72.
The forward rate is being sold at-

(A) The pounds received are £1,227.80 and the forward rate is being sold at discount.
(B) The pounds received are £ 2,787.80 and the forward rate is being sold at
premium.
(C) The pounds received are £ 3,257.86 and the forward rate is being sold at par.
(D) The pounds received are £ 1,434.82 and the forward rate is being sold at correct
value.

Answer: A

[24-DL-4]
The face value of bond is $1,000. The bond is redeemable at par after 7 years and the
coupon rate is 14% and the yield to maturity is 15%. The coupon is paid semi-annually.
The bond is callable and can be called after 3 years at $978.65. If the bond is held till
maturity, what is the duration and volatility of the bond?

(A) 5.02 years; 3.632%

(B) 4.24 years; 2.414%
(C) 4.62 years; 4.302%
(D) 4.70 years; 4.243%

Answer: C

[25-DL-4]

IRL company has excess cash of $85,000,000. The management use 25% of cash to buy
back shares. The number of shares outstanding are 10 million and earnings per share is
$3.50. The share price is estimated to be 12% more than the buyback price. If the market
capitalization after buyback should be $250 million, what is the buyback price per share?
What are the earnings per share after buyback?

(A) $22.88; $3.44

(B) $21.21; $3.95
(C) $23.41; $3.67
(D) $24.45; $3.83

Answer: D

[26-DL-4]

The management of AI, Inc. has decided to install manufacturing plant. This project
requires $20 million (Net of expenses) and the flotation cost would be 2% of issue size.
For this project, the company will issue ADR’s (American depository receipts). The face
value of ADR is $10, and the expected market price is $250. There will be two
underlying shares per ADR and discount of 10% to market price will be given. The
expected exchange rate is £60/$. What are the number of ADR’s issued? If the expected
dividend is 15% with growth rate of 15%, what is the cost of ADR?

(A) The number of ADR’s issued are 2.721 million and the cost of ADR is 15.68%
(B) The number of ADR’s issued are 1.536 million and the cost of ADR is 20.76%
(C) The number of ADR’s issued are 1.133 million and the cost of ADR is 18.64%
(D) The number of ADR’s issued are 2.645 million and the cost of ADR is 14.42%

Answer: A

[27-DL-4]

PLS Inc., is evaluating between two machines. The initial outlay of machine Q is $4
million with operating cost of $1.4 million and the salvage value at the end of 6 years is
$1 million. Machines S’s initial outlay is $5 million with operating cost of $1.6 million
and salvage value at the end of 4 years is $0.5 million. The hurdle rate used by the entity
is 15%. Which machine should PLS choose?

(A) Machine Q.
(B) Machine S.
(C) Either machine Q or S.
(D) Neither machine Q nor S.

Answer: A

[28-DL-4]

A private employee is planning to buy a house within 8 years and is saving some amount
to pay for the down payment of the house. He is currently depositing $5,000 at the end of
first year and the deposit amount will be increased by 3.5% each year thereafter.

If the rate of return on savings account is 6.5%, calculate the amount that will be
available for the down payment at the end of year 8.

(A) $109,165.95
(B) $56,364.44
(C) $167,639.48
(D) $10,896.57

Answer: B

[29-DL-4]

MNS company currently has common shares outstanding with earnings per share of
$3.50. The company’s stock is currently trading at a price of $105. The company is
paying out 46% as dividends.

An individual holds 4,300 shares of MNS and the company announces 3 for 1 stock split
with same dividend payout ratio.

Compute the total cash dividends and market value of the stock after split.

(A) Total cash dividend: $62,307, market value of stock after split: $4,063,500
(B) Total cash dividend: $6,923, market value of stock after split: $50,167
(C) Total cash dividend: $6,923, market value of stock after split: $726,915
(D) Total cash dividend: $6,923, market value of stock after split: $451,500

Answer: D
[30-DL-4]

Company EON is evaluating a project whose initial investment of $500,000 with 10 years
of life and salvage value of $70,000. The company uses straight line depreciation method.
The sales of the company are 5,000 units per year with price per unit of $130, variable
cost per unit of $35 and the fixed cost is $350,000.

Calculate the operating income under best case and worst case assuming the sales, price,
variable cost, fixed cost are changing by ±20%.

(A) Best case: $214,000, Worst case: -$26,000

(B) Best case: $438,000, Worst case: -$222,000
(C) Best case: $284,000, Worst case: -$96,000
(D) Best case: $334,000, Worst case: -$46,000

Answer: B

[31-DL-4]

Following are the expected free cash flows of company KM for the next 3 years:

Year Free cash flow

1 -$2,000,000
2 $3,000,000
3 $4,000,000

The free cash flows ae expected to grow at a constant rate of 6% after 3 years. The
required rate of return is 10%.

Calculate the current value of company.

(A) $3,666,416.23
(B) $83,305,785.12
(C) $35,522,163.79
(D) $6,851,990.98

Answer: B

[32-DL-4]

Phay, a US based company is the parent company of a Japanese lab company. The
subsidiary company will be announcing next year’s dividend of Yen 15.00 and it is
expected to grow at a rate of 3% per year forever. The required return for the Japanese
lab corporation is 13.5%.

The exchange rate between the Japanese Yen and the US dollar is expected to be
$0.019/Yen. After this the Yen is expected to depreciate by 6% per year. Phay company
holds 2,500,000 shares of the subsidiary company.

Calculate the total value of equity.

(A) $6,729,711.14
(B) $3,166,666.67
(C) $5,277,777.78
(D) $4,341,171.25

Answer: A

[33-DL-4]

Company BH is planning for a new expansion that requires $70,000,000 of fund. The
company is estimating the legal expenses will be of $500,000 with the advertisement
expenses of $210,000, indirect expenses of $190,000, and the underwriting spread will be
5%. The underwriter estimated issue price per share of $45.50 with an expected
subscription of 100%.

Calculate the total flotation cost and the number of shares to be issued.

(A) Total flotation cost: $43,105,263.16, No. of shares to be issued: 20,821

(B) Total flotation cost: $34,247.07, No. of shares to be issued: 34,247
(C) Total flotation cost: $4,631,578.95, No. of shares to be issued: 1,640,254
(D) Total flotation cost: $2,476,190.48, No. of shares to be issued: 1,484,040

Answer: C

[34-DL-4]

Following is the available balance sheet information of company AB:

Particulars Amount
Total Assets $670,000
Total liabilities $200,000
2.00% preference share
capital $200,000
Retained earnings $50,000

Calculate the preference dividend and common equity dividend if the common equity
dividend rate is 8.70%.

(A) Preference dividend: $17,400, Common equity dividend: $23,490.

(B) Preference dividend: $6,000, Common equity dividend: $36,540.
 (C) Preference dividend: $20,100, Common equity dividend: $27,840.
(D) Preference dividend: $6,000, Common equity dividend: $19,140.

Answer: D

[35-DL-4]

Following is the capital structure of company ST as of 31st March 2000:

Particulars Amount
$70,000,00
Equity share capital 0
6% preference share $30,000,00
capital 0
$48,000,00
11% Debentures 0
$30,000,00
Reserves 0

The profit before interest and tax is $28,000,000 and is subjected to 35% tax deductions.
The company is currently paying dividend of 8%. The profit after tax covers fixed
interest and dividends at least 3 times. The return on similar equity shares is 8.7% and the
capital gearing ratio is 0.75.
Calculate the following:

1) Interest and fixed dividend coverage ratio

2) Capital gearing ratio

(A) 3.80 times; 1.95

(B) 3.95 times; 2.60
(C) 2.83 times; 0.78
(D) 6.69 times; 1.11

Answer: C

[36-DL-4]

Company PEP has a high yield outstanding bond with face value $20,000 that matures in
8 years and pays 9% coupon rate annually. The bond has special feature of extending its
maturity to 11 years. The current interest on equivalent bond is 7%. The investor invests
in the bond by expecting that the rate will be 7% five years from now but, it turns out to
be 11%. Calculate the potential loss/gain of the investor.

(A) $17,175
(B) $8,665
(C) $19,465
(D) $4,447

Answer: D

[37-DL-4]

A convertible bond with face value $3,000 is paying 11% coupon annually and is
currently selling at a price of $3,300. The bond consists of 20 shares per bond and each
share is trading at a price of $11. The straight value of bond is $2,700.

Calculate the conversion premium and conversion parity price of the stock.

(A) 13.21%; $12.45

(B) 9.09%; $10.19
(C) 13.21%; $11.32
(D) 9.09%; $12.45

Answer: A

[38-DL-4]

Company AMP wants to determine the equivalent annual cost of one of its system. The
initial cost of the system is $300,000 with an annual cost of $55,000 and has salvage
value of $19,500 at the end of its life i.e. 4 years.

Calculate the equivalent annual cost of the system, if the discount rate is 7%.

(A) $139,176.49
(B) $139,736.18
(C) $37,960.38
(D) $125,423.94

Answer: A

[39-Dl-4]

N Inc is just paid a dividend of $1.55 and dividend are expected to grow at 27% for next
8years and then dividend is to grow at -5% indefinitely. If required rate of return is 12%
what is the price of the stock today? (Do not round intermediate calculations)

(A) The current price of the stock is 86.

(B) The current price of the stock is $46.
(C) The current price of the stock is $68.
(D) The current price of the stock is $37.

Answer: B
[40-DL-4]

A US based multinational corporation has a subsidiary in Germany. The firm wishes to

forecast the dollar value of its subsidiary's future liabilities. The quick ratio of the
subsidiary is 1.4. Its current inventory, accounts receivables, and cash balances are
1,960,000 euros, 1,800,000 euros, and 540,000 euros respectively. The firm forecasts
that 40% of its total current liabilities will be due 3 months from now, and 45% will be
due 6 months from now.
The spot euro-dollar exchange rate is 1.8 dollars per euro. The current risk-free rate of
interest in Germany is 4%, and that in the United States is 3%. If interest parity holds,
what is the dollar value of the firm's German liability due 3 months, and 6 months
from now respectively?

(A)The dollar value of the firm's 3-month and 6-month liability are $1,440,539.75
and $1,886,108.82, respectively.
(B) The dollar value of the firm's 3-month and 6-month liability are $1,080,404.81
and $943,054.41, respectively.
(C) The dollar value of the firm's 3-month and 6-month liability are $1,200,449.79
and $1,347,220.59, respectively.
(D)The dollar value of the firm's 3-month and 6-month liability are $2,400,899.58
and $2,694,441.18, respectively.

Answer: C