FMI ASSIGNMENT

1. Chapter 17 Q9

Ans: Advantages:

- If the dividends are not paid out on time, there is no legal action on the company
- There is no dilution of control as preference share holders doesn’t have voting rights.

Disadvantages:

- It is an expensive source of financing as there is an associated dividend tax.

- Preference share holders have a prior claim on the earnings.

2. Chapter 17 Q13

Ans: Equity capital has no risk associated but it leads to dilution of the control for the company. On
the other hand, term loans and debentures offers high risk and no dilution of the control of the
company . Preference capital on the other hand have very negligible risk coupled with no dilution of
control over the firm.

3. Chapter 18 Q9

Ans: The major reasons for IPO’s being underpriced are:

- Underpriced IPO’s act as a bait to the investors to remain loyal to the organization by
satisfying them
- It acts as a Winner’s curse in the form of incentives for the uninformed individual investors
- Due to strict regulatory regulations, IPO’s are underpriced sometimes.
- It helps in earning good-will of the investors

4. Chapter 18 Q19

Ans: The regulations are:

- A special resolution must be obtained from the Shareholders or a approval must be taken
from central Government
- A special approval must be taken from SEBI incase of allotment of more than 25% of the
equity.
- A 3 years lock in period should be there if the securities are issued to the promoters group
The price of the allotment should be the weighted average of the lower and higher closing
price of the week for last 6 months.

5. Chapter 18 Q21

Ans: The types of appraisals done by the financial institutions are:

- Marketing-> Efforts are made to assess the adequacy and competence of market
infrastructure and demand rationales
 - Technical -> To review the capacity, locations and sites, raw materials, manufacturing
process
- Financial-> To assess the adequacy of capital cost, working results and rate of return
- Economic-> Calculation of economic rate of return using “Partial Little Mirrlees” along with
domestic resource cost and effective rate of protection.
- Managerial-> Judging the managerial capacity based on commitment, resourcefulness and
understanding

6. Recent Happenings related to chapter 17

Ans: As per the Economic Times reference

(https://economictimes.indiatimes.com/markets/companies/iifl-home-finance-to-raise-up-to-rs-
1000-crore-via-bonds/articleshow/84174099.cms) , the housing finance firm IIFl Home Finance is
issuing an opportunity for the investors to lock in Non Convertible Debentures at a high coupon rate
of 9.6-10 % p.a . The company is aiming to raise a capital of around 1000 crores. It has a tenor of 87
months.The subscription opened on July 6 and will be available till July 28 th 2021. This is being done
to raise funds for payment/repayment of existing liabilities, financing ,lending purposes and the
balance is expected to be used for other general developments of the organization.

7. Recent happenings related to chapter 18

Ans: According to Economic Times (https://economictimes.indiatimes.com/markets/ipos/fpos/lic-

cleans-books-of-bad-loans-as-it-gets-ipo-ready/articleshow/84255521.cms), the major insurance
company LIC is gearing up for it’s IPO release at the end of September. The organization is not keen
on selling off it’s NPA’s by going in for IPO. It brought down the 0.79% NPA from March 2020 to 0.5%
NPA March 2021. Alongside, it is working SEBI regulations to finalize the policies for listed
companies. Amendments have also been made to make sure Central government holds about 51%
of the share for the next 5 years. The central government is already working on pitching global
investors about the mega LIC IPO offer.