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weschool Wlngkar Education

End Trimester Examination

PGDM/RM/e-Biz I(2016-18) Trimester-V Marks: 60
Specialisation: Finance
Date: 07-10-17 Mergers & Acquisition Duration: 2 Hrs.

Notes: All questions are compulsory.

******* ******

1. (15 marks)
You are considering the acquisition of XYZ Enterprises. XYZ's Balance Sheet as at
today (year 0) is as follows:
(RsCrores)
Assets Liabilities
Current assets 50 Current Liabilities 20
50 Debt 30
Plant
Net worth 50
100 Total 100
Total
Following are the projections for the next 5 years

Year 5
Year1 Year 2 Year 3 Year 4
217 239 270 293
| Sales 200
22 25 26 30
EBIT 20
41 44 48
NWC 33 37
5 5 6 8
Depreciation 15 6 20
10 10
Capex
Tax rate t = 34% and WACC = 13%. Sales Growth after 5 years will be 5%

Provide two alternative valuations based on

Calculate the value of XYZ Enterprises.
reference to the continuity value. In one of the
two alternative scenarios with
of steady state cash flow.
alternatives you may consider the concept
-

(15 marks)
2.

Compute the value of Target Ltd., with the help of comparable firms, using following
information of Target Ltd.:

Sales (Rs. Crores) 200

Reserves & Surplus (Rs. Crores) 90
EPS (Rs/Share) 10
Number of share (Crores) 3
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Details of comparable firms are as follows:

Alpha Ltd Beta Ltd Gama Ltd

Sales(Rs. Crores) 160 240 300
Reserves &Surplus(Rs. Crores) 56 160 170
16.6
EPS(Rs/Share) 10 18
150 160
Market Price (Rs/Share) 100
| Number of share (Crores) 4 2 3
in the valuation
n e valuer feels 50% weightage should be given to earnings
Shares of both
process, and sales and book value may be given equal weightage.
the companies have face value of Rs. 10

3.
(10 marks)

Big Fish Ltd has agreed to buy Small Fry Ltd

Fish will issue 700 million shares in one-for-one share exchange
offer. The
Big
nominal value of both shares is Re 1. The market price of Big Fish is Rs. 175 per
share. The fair value of fixed assets of Small Fry is Rs. 750 million.

Pre-offer balance sheets (in Rs million) of both the companies are given below:

Items Big Fish Small Fry

Fixed assets 820 560
Net current assets 330 270
Total 1150 830

Share capital 800 700

Reserves & surplus 350 130
Total 1150 830

Prepare post merger balance sheet of Big Fish Ltd. as per purchase method.
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. (10 marks)

Solid Co. Ltd. is considering the acquisition of Float Co. Ltd. The data for deal are
set in the table below: -

The exchange ratio is determined based on market prices. Complete the third
column of the table. Clearly state the underlying assumption:

Solid Co. Ltd Float Co. Ltd. Solid co. Ltd.

Rs. Rs. (Post-merger)
1. EPS 3.5 .50
2. Market Price 52.50 26.25
3. PE Ratio 15 7.5
4. Number of shares 1,50,000 1,50,000
5. Total Earnings 5,25,000 5.25.0000
6. Total Market Value 78,75,000 39,37,500

(10 marks)
5.
have following
Two small appliances manufacturing firms that operate independently
financial numbers:

Reliable Safex
8000 4000
Sales
Less: COGS 6000 2400
2000 1600
EBIT
Expected Growth Rate 4% 6%
Cost of Capital 9% 10%

in steady state, with capital spending

offset by depreciation. No
Both firms are
firms face a tax rate of 50%. Combing firms will
working capital is required and both of
distribution and marketing costs, reduction in cost
Create, in the form of shared
goods sold, from 70% of sales to 65% sales

Question
What will the value of combined entity with and without synergies?
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Trimester IV End Term Examination Date: 9" October 2017

PGDM-Finance Advanced Financial Management
Duration: 2 Hrs Total: 60 Marks
Note: Calculators are allowed.

he balance

Q1) Rapid ltd., a manufacturer of consumer durable products, is evaluating its capital structure.
sheet of the company is as follows (Rs. in millions):

Assets Liabilities
Fixed Assets 4000 Debt 2500
Current Assets 1000 Equity 2500

In addition, you are provided the following information:

with coupon rate of 10%.
a
The bonds are currently
The debt is in the form of long term bonds,
the face
12% (the market value of the bonds is 80% of
rated AA and are selling at a yield of
value). Rs. 80 per
and the current market price is
T h e firm currently has 50 million shares outstanding,
ratio of 10.
a dividend of Rs. 4 per
share and has a price/earnings
share. The firm pays
bill rate is 8% and the market risk
The stock currently has a beta of 1.2. The six-month Treasury

premium is 5.5%.
T h e tax rate for this firm is 40%.

terms? in market value terms?

ratio for this firm in book value
aWhat is the debt/equity
of debt?
What is the firm's after-tax cost
What is the firm's cost of equity?
(3 marks)
current cost of capital?
What is the firm's

its capital structure. It has three options:

b) Rapid is considering a major change in
it
stock and repurchase half of
its outstanding debt. This will make
Issue Rs.1 billion in new
Option 1: 11% in the market place).
a AAA rated firm (AAA rated debt is yielding

its rating to A-. (A- rated

debt and buy back stock. This will drop
2: Issue Rs. 1 billion in
new
Option
debt is yielding 13% in the
market place).

back stock. This will drop its rating to CCC (CCC rated
Issue Rs.3 billion in new debt and buy
Option 3:
debt is yielding 18% in the market place).

each option?
i) What is the cost of capital under would you stay
would you pick, or
From a cost of standpoint, which of the three options
capital
at your current capital structure??
income play in your decision
What role (if any) would the variability in the company's
of capitg
translate into a lower cost
V Intuitively, why doesn't the higher rating in option 1
(12 marks)
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the traditional discounted cashflow
w
ditter irom
approach
present value
Q2a) How does the adjusted (5 marks)
better method? Why?
approach? Which is
a

K$. 2 / 9
and the expected post-tax cash fln.
i n v e s t m e n t is
Its initial a Rs
perpetual project. all-equity financing is 149
and
Consider a with
Q2b)
in perpetuity. The
opportunity
cost of capital
c a l c u l a t e this project's value. Aco
project
36 million a year Use APV to
rate is 30%.
borrow at 8%. The tax
the debt amount is to be fivedd and
allows the firm to debt and that
100 million of
financed with Rs.
the project will be partly (5 marks)
perpetua.
in their existing business.
million 5 year project
a Rs.100
Ltd. is considering
Q2c) Yin and Yang the risk level of the fi..
and not change firm.
of Rs.38 million per year,
The project will generate
EBITDA
over five years
to zero salvage value
straight-line
The initial expense
will be depreciated
million.
value in year 5
will be Rs.6 finance the
The pretax salvage loan at 11% to part t
project
Rs.50 million
bullet payment
The firm can obtain a five-year cost of capital
would be 16%.
w e r e financed
with all equity, the
Itthe project
30%.
Corporate tax rate is investment in net working capital.
million
a Rs.10 (5 marks)
The project will require
Calculate the APV.

about hedging Singapore $ (S$) 70 milio

ion in
to decide how to go
Dutch Airlines (KLM) is trying and interest rates. (15 marks
Q3)KLM Royal faces the following exchange
ticket sales receivable
in 180 days. Suppose it
Euro 0.6433-42/S$ (bid/ask)
Spot rate:
Euro 0.6578-99/S$ (bid/ask)
Forward rate (180 days)
4.01%-3.97%
rate (annualized):
S$ 180-day interest
interest rate (annualized): 8.01%-7.98%
Euro 180-day
a forward hedge? market Bid is the rate at which
What is the value of KLM's ticket sales using
hedged
a) ask is the sell rate.
the bank/dealer will buy the currency
(in this case SS),

money market hedge? Assume the first interest

hedged value of KLM's ticket
sales using a
b) What is the be lent.
can be borrowed and the second one the rate at which it can
rate is the rate at which money

c)Which hedge is better for KLM?

d) Is there an arbitrage opportunity here? Yes/No

is Euro0.67/S$ with a most likely range of Euro0.b4
Suppose the expected spot rate in 180 days
e $0.70/S$. Should KLM hedge? What factors should enter into its decision?

Q4)Write short notes on any 3 (15 marks

a Structured financial instruments

b) Benefits of securitization
c) Challenges in tariff setting for infrastructure projects
d) Sources of finance for infrastructure projects
 VWeschool
End Trimester Examination
PGDM/BDI(2016-18) Trimester-V Marks: 60
Specialisation: Marketing/ Finance
Date: 10-10-17 Fundamentals of Banking Duration: 2 Hrs.

Instructions

1. Question No. 1 (10 marks) is compulsory.

2. Answer any 5 from the rest - Each carries 10 marks.

- 10 marks
Q.1. Do as Directed- (any 10)

a) This is not a Retail Liability product

i) Home Loan
ii) Savings Bank account
ii) Current account
iv) Term deposits
(Choose the correct option)

Call Money represents

i)Borrowingfrom RBI
ii) Borrowing from Government of India
ii) Borrowing from CCIL
iv) Inter-Bank borrowing /lending
(Choose the correct option)

reflected in the Balance Sheet of a bank under

C) Savings deposits are
i) Contingent liability.
i) Time liability.
ii) Demand liability.
iv) Business liability
(Choose the correct option)
which has reached your bank. Rate
d) There is a foreign remittance in your favour
displayed is US$/ INR 64.30/ 64.35. Which rate applicable you?
is to

e) NRE account is maintained in foreign currency. (True / False)

 f) Reverse Repo Rate is

i) Repo rate plus 50 basis points

i) Repo rate plus 25 basis points
ii) Repo rate minus 50 basis points
iv) Repo rate minus 25 basis points
(Choose the correct option)

g) Major difference between Basel l1& Basel II is - Capital Charge on

i) Credit Risks
ii) Market Risks
ii) Operational Risks
iv) Reputational Risks
v) None of these
(Choose the correct option)

h) CRAR means
i) Credit Risk Assessment Ratio
i) Capital to Risk-Weighted Assets Ratio
ii) Capital to Revenue Assets Ratio
iv) Capital Returns Assessment Ratio
(Choose the correct option)

) Which of the following is not a credit rating agency?

i) CARE
i) CRISIL
ii) ICRA
iv) CORM
(Choose the correct option)

) Which of the following is not a derivative product?

i) Call option
i) Interest Rate Swap
ii) Forward Rate Agreements
iv) Foreign Bills Negotiated
(Choose the correct option)
) HH Index is connected to

i) Reputational risks
i) Concentration risks
in) Operational risks
iv) Liquidity Risks
(Choose the correct option)

Domestically systemically important banks in India (DSIB)

are

1) State Bank of India, 2) ICICI Bank and 3) (Fill in the blank)

looked into, two are

m) Under principles of lending, 3 C's of borrowers need to be
Character & Capital. Name the third one.

n) Special Mention Accounts (SMA) are of

i) 2 Categories
ii) 3 Categories
i) 4 Categories
(Choose the correct option)

follow
Under Exchange rate maxim in Direct Quotes,
we
o)
i) Buy Low, Sell High
i) Buy High, Sell Low
ii) Buy High, Sell High
(Choose the correct option)
Products & two Retail Liability Products of
Q.2. Name& Explain two Retail Asset
Banks
Q.3. Write short notes-(Any two)

(a) Hypothecation

(b) Demand Loan

(c) Money Laundering

(d) Negotiable Instrument

Q4. Briefly explain two funded and two non-funded facilities.

Q.5 Name & explain 3 essential documents used in Trade finance.

 How frequently is it issued? Exnia:
Q.6 What arethe objectives of Monetary Policy? plain
Policy.
the salient features of the latest Monetary

Q.7. Mumbai Market quotes:

USS = Rs. 64.30 /64.35

London Market qyotes:

S$ 1.35/ 1.40
USS
Dollar 10,000/-, How much India
dian
have received Singapore
As an exporter, you
the bank?
Rupees ill be paid to you by
mechanism of Letter of Credit.
Q.8 Explain in brief the
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we school Yelsgha: tdut4tO

PGDM-/R&BA/(20162 Tri sterrimester Examination Marks: 60

Specialisation: Finance
Date: 14-10-17 Financial Risk Management Duration: 2 Hrs.

Instructions: 1. Q1 is compulsory.
Answer any FOUR out of remaining SIX questions.

Q1)
Underlying Stock XYZ
Underlying Price 895

Option Type European

Strike Price Call Option Put Option
Premium Premium
880 31 12
900 20 22
920 13 33
Profit & Loss
Based the above information, prepare Profit & Loss table and
on
from the below mentioned option
diagram illustrating how the profit or loss
of the option by considering
strategies depends on the underlying price expiry interval of Rs.20 and also
at
Rs.980 with a price
price range of Rs.820 through below
calculate Break even point, Maximum profit and Maximum loss for the
mentioned option strategies at expiry.(ignore any transaction cost)

strike price of Rs.900

i) Long straddle using of Rs.880 and Rs.920
i) Short strangle using strikeprice of Rs.880 and Rs.900
strike
spread using
Bull call price
in strike price of Rs.880 and Rs.900
iV) Bear put spread using (20 Marks)

- (5x2) 10 Marks
from (a) or (b) or (c)-
Q2) Answer any two
the term "Economic capital"
(5 Marks)
a) Explain
worth Rs.50 Lakhs, with a beta
of 1.5 relative to the
b) An equity portfolio is contract is currently
benchmark Index futures
benchmark Index. The
lot size is 25.
trading at 25000 and a futures contract to
position should be taken in the Index
i)What market risk?
completely hedge the equity portfolio's Index futures contract to reduce
taken in the
)What position should be
1.25?
the beta of the equity portfolio to (5 Marks)
factors on pricing of a put option.
c) Explain the effect of primary (5 Marks)
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Answer any two from (a) or (b) or (c) (5x2) 10 Marks

Q3) Greeks
option
a) Briefly explain the following
Vega
. Theta (5 Marks)

b) Explain and illustrate futures based Long hedge strategy

(5 Marks)
of spot and futures contract
c) The standard deviation of change in prices is
the coefficient of correlation behae.
0.03 and 0.04 respectively and etween
contract is 0.93. Calculate and exolain
change in prices of spot and futures plat
the optimal hedge ratio? (5 Marks)

Q4) Answer any two from (a) or (b) or (c). (5x2) 10 Marks
been offered to A Ltd. and B Ltd. bv thei
a) Following borrowing rates have
respective banks for Rs.30mn for 5 years.

Fixed Floating

A Ltd. 10% MCLR+0.5%

BLtd. Ltd 11.50% MCLR+1% |

A Ltd. wants to borrow at a floating rate and B Ltd. wants to borrow at fixed
rate. How would a swap be structured if the intermediary was to get spread
of 0.2% and A Ltd. and B Ltd. were to share the rest of the benefit equally?
Draw a swap diagram and calculate the improved cost to A Ltd. and B Ltd.
(5 Marks)
b) Explain option based protective put buying strategy with an example.
(5 Marks)
c) Explain and illustrate futures based Reverse Cash and carry arbitrage
(5 Marks)
strategy
Answer any two from (a) or (b) or (c) (5x2) 10 Marks
Q5)
-

reference to a put option contract

a) Explain the following terms with
i. In-the-money(TM)
(5 Marks)
ii. Out-of-the-money(OTM)
b) A trader wants to take buy position in 2 contracts of the stock futures wnic
trades at Rs.900 with a lot size of 500. Historical annualized volatility io
the stock is 15%. Number of trading days in a year is 300. Basea o

above information,
i)Calculate and explain VaR for 95% 1 day trading horizon.
) Calculate and explain VaR for 99% 3 days trading horizon.
(5 Marks)
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) A stock price is currently quoting at Rs. 800 and in one year period it may
go up by 10% or down by 10%.The risk-free interest rate is 7% per annum.
caculate the value of one year European put option with a strike price
Rs.800 using the one period binomial
pricing
option model
(5 Marks)

Q6) Answer any two from (a) or (b) or (c)- (5x2) = 10 Marks
a What are the key assumptions of Black-Scholes option pricing mode
(5 Marks)
b) What are the differences between futures contract and options contract?
(5 Marks)
C) The current value of an Index is 10000 and the Index trade with a multplier
futures contract. The
Or 50. There are 90 days to maturity of the Indexof 2% in the Index andcost
1s
of financing is 9% p.a. XYZ Ltd. has a weight
Current value is Rs.1000. XYZ Ltd. will be declaring dividend of Rs.20 per
or
share after 60 days. Based on the above information calculate the price
the Index futures contract expiring after 90 days.
(5 Marks)
(5x2) = 10 Marks
Q7) Answer any two from (a) or (b) or (c) -

the following financial risk

a) Briefly explain
i. Market risk
(5 Marks)
i. Credit risk
Call and Put
the spot market. European
b) Stock XYZ is trading at Rs.700 in months to expiration
strike price of Rs.700 with 3
options for XYZ for the free rate of interest is 7%
are trading at Rs.50
and Rs.42 respectively. Risk
theory? If yes,
Is there any arbitrage opportunity with put call parity
p.a. (5 Marks)
explain the arbitrage strategy.
with reference to
difference between hedgers and speculators
c) Explain the (5 Marks)
derivatives market.