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CASE STUDY – 1
Political Corruption in
India
Government has been jolted by controversy over
licences and radio airwaves that the CAG of India) says were given out too
cheaply, depriving the government of up to $39 billion in revenues. The telecom
minister, A Raja was forced to resign and the Prime Minister Dr Manmohan Singh
has been asked to explain himself to the Supreme Court. Opposition parties want
a full parliamentary probe and have blocked proceedings until the government
relents.
So, what is the controversy all about and what does
it mean for the telecom sector and companies?
In 2008, the country issued 122 new telecom licences
and the second-generation radio spectrum bundled with it to several domestic
companies that had little or no experience in the telecom sector, and at a
price set in 2001.
The national Auditor General said that the allocation
process did not reflect the correct value of radio spectrum as there was no
auction and the entire process was flawed, benefiting selected companies.
The Auditor General said that the telecom ministry
did not do the requisite due diligence, granting 85 out of the 122 licences to
ineligible applicants.
The auditor also said the ministry did not follow its
own guidelines, changed the cut-off date for applications, which gave
"unfair advantage" to some companies over others. It said that the
entire process "lacked transparency and was undertaken in an arbitrary,
unfair and inequitable manner".
The auditor said that several companies deliberately
suppressed facts, disclosed incomplete information, submitted fictitious
documents and used fraudulent means to get licences and thereby access to
spectrum.
The auditor said that units of Unitech Ltd, which
received licences in 2008 and now operates services in a joint venture with
Norway's Telenor, had not fulfilled eligibility conditions including required
share capital.
Other firms which were ineligible according to the
auditor include Loop Telecom, Videocon Telecommunications and S Tel Ltd. The
auditor said that Swan Telecom, which has since been partly acquired by the
UAE's Etisalat , was given licences even though a unit of No. 2 telecoms firm
Reliance Communications held over 10% of equity, a violation of rules.
It is still too early to know whether any licences
would be cancelled, but the pressure would be strong not to do so because
operators have invested in networks and have subscribers.
Any big crackdown could send a wrong signal to
investors.
But the government could ask operators to compensate
for the potential revenue loss as highlighted by the auditor and may impose
fines for not meeting separate rollout obligations.
The Auditor General also named nine other operators,
including market leaders Bharti Airtel , Reliance Comm and Vodafone, who were
allotted spectrum beyond the contracted limit without paying any upfront
charges, costing the government a potential $8 billion.
Questions:
Question 1: How many Telecom licenses were
issued and how many were found ineligible?
Question 2: What was the potential loss of revenue to
the nation? How did the CAG of India calculate the loss?
Question 3: Explain with examples the various kinds
of ‘white collar crime’. How does this case fall under the category of white
collar crime?
Question 4: How did these companies violate the
principles of Business Ethics and Corporate Social Responsibility?
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IMT- 86
INTERNATIONAL FINANCIAL
MANAGEMENT
SECTION – A
1. What
kind of finances are available from foreign sources? Explain in detail the role
of various institutions providing foreign finance?
2. Exchange
rate
Type
Period
Conversion rate
a. CAN $ to USD
SPOT
Today
1.0401
b. CAN $ to USD
FORWARD 3 months 1.0329
c. Six months interest rate
d. USD
9% P.A,
e. CAN$
6% P.A.
3. Discuss
about the following in detail with example.
a. Forward contract
b. Future contract
4. Explain
how an Indian company can make investments abroad on fast track.
5. What
are the ‘Rule’ requirements for a company to get listed on NASDAQ?
SECTION – B
1. Give
the status of forex market in the present era.
2. A
US MNC has its subsidiary in India. 10% preference shares of the face value of
Rs. 50 have been issued by the subsidiary, to be redeemed at year end 8.
Flotation costs are expected to be 4%. These costs can be amortized for tax
purpose during the 8 years at a uniform rate. The corporate tax rate is 35%.
Determine the cost of preference shares from the perspective of the subsidiary.
3. Why
was the fixed rate system was replaced by the floating exchange rate system?
4. Assessing
and managing risk is a complex and critical task for international projects.
Risks in terms of international projects can be categorized into the following.
Discuss.
5. What
is the difficulty in extending the domestic CAPM to world environment?
SECTION – C
1. Briefly
outline the measure to avoid double taxation.
2. What
is country risk? Discuss its elements.
3. Should
international firms require higher rates of return on foreign projects than
identical projects at home? Comment.
4. What
is a foreign exchange market? Explain the functions of a foreign exchange
market.
5. One
French franc could be purchased in the foreign exchange market for 21 US cents
today. If the Franc appreciated 10% tomorrow against the dollar, how many
Francs would a dollar buy tomorrow?
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CASE STUDY – 1
1. The
current value of the S & P 500 index is $ 1000. The value of portfolio is
$5 million. Beta of portfolio is 1.5. One futures contract is for delivery of $
250 times the index.
a) What position in futures contracts on the S &
P 500 is necessary to hedge the portfolio?
b) Use the data for the value of the index and the
future price of in the index, both 3 months aheads, to assess the performance
of the stock index hedge by recording the gain on the futures position, the
return on the market, the expected return on the portfolio, the expected
portfolio value in 3 months ( including dividends) and the total expected value
of the position in 3 months .
|
Scenario |
Value for index futures |
Price of index |
|
1 |
900 |
902 |
|
2 |
950 |
952 |
|
3 |
1000 |
1003 |
|
4 |
1050 |
1053 |
|
5 |
1100 |
1103 |
The current futures price is $ 1010. The dividends rate on the index is
1% per annum. The risk-free rate is 4% per annum.
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CASE STUDY – 2
Suppose a subsidiary of America currently has an
annual sale of $ 50,00,000 with 45 days credit terms. The sales of the
subsidiary can be increased by 6% or $ 3,00,000 if the company relaxes its
credit period to 120 days. With this extension in sales, the cost of goods sold
is $ 1,00,000. Monthly credit expenses of the subsidiary are 1% in financing
charges. The dollar is expected to decrease in value on an average of 0.5%
every 30 days. If the currency change is not considered then calculate the
total financing cost.
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IMT- 87
RISK MANAGEMENT
SECTION – A
Question 1: (a) Explain the principles of risk
management. Also explain the limitations of risk management.
(b) Explain the difference between credit risk and
the market risk in a financial contract.
(c) Explain why a bank is subject to credit risk when
it enters into two offsetting swap contracts.
(d) Describe briefly some strategies for controlling
interest rate risk.
(e) What do you understand by Interest rate risk?
What are its sources and also explain the broad categories of interest rate
risk.
SECTION – B
Question 2: (a) How the options and futures can be
used as hedging vehicle? How basis risk replaces the price risk by hedging?
Explain.
(b) How is a call option different from Put option?
What do you mean by exercising an option?
(c) Critically examine, “buying a call option is
risky because the holder commits to purchase a share at a later date.”
(d) What do you mean by options strategies? Explain
how different strategies can be used as a risk management tool. Give suitable
examples.
(e) What do you mean by Strangle? Is it possible to
make profits irrespective of increase or decrease in prices of an underlying
asset?
SECTION – C
Question 3: (a) What are different type of currency
Derivatives? What are its uses under foreign exchange risk management?
(b) What do you mean by Foreign Exchange risk and
what are the tools to manage foreign exchange risk?
(c) What do you mean by Hedge Ratio?
(d) Explain how a total return swap can be used as a
financing tool?
(e) Explain: Liquidity risk
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CASE STUDY – 1
An investor can use different Option strategies for
Risk management. Given below are some of the strategies being contemplated by a
person. You are required to calculate
(i) Risk neutral position
(ii) Maximum pay off and
(iii) Maximum Loss under each strategy:
(a) Mr. XYZ is bullish about ABC Ltd stock. He buys
ABC Ltd. at current market price of Rs. 4800 on 4th July. To protect against
fall in the price of ABC Ltd. , he buys an ABC Ltd. put option with a strike
price Rs. 4500 (OTM) at a premium of Rs. 100 expiring on 31st July.
(b) Mr. XYZ is bearish on Nifty; When the Nifty is at
4894. He buys a put option with a strike price of Rs. 4700 at a premium of Rs.
50, expiring on 31st August.
(c) Mr. XYZ is bullish on Nifty when it is at 4180.
He sells a put option with a strike price of Rs. 4400 at a premium of Rs. 120
expiring on 31st July.
(d) Nifty is at 4850 on 27th April. An investor, Mr.
A enters a long straddle by buying a May Rs. 4900 Nifty put for Rs. 85 and a
May Rs. 4900 Nifty call for Rs. 122.
(e) Suppose Nifty is at 4500 in May. An investor, Mr.
A, executes a short strangle by selling a Rs. 4300 Nifty put for a premium of
Rs. 23 and a Rs. 4700 Nifty call for Rs. 43.
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CASE STUDY – 2
X Ltd Canada and Y Ltd of U.S. have approached a swap
dealer to arrange a currency swap for them. Interest rate in U.S. and Canada
for fixed rate borrowing and floating rate borrowing are:
|
US$ |
CANADA $ |
|
|
X Ltd. |
LIBOR +1% |
6% |
|
Y Ltd. |
LIBOR +1.5% |
7.5% |
X Ltd wants to borrow US $ at floating Rate while Y
Ltd wants to borrow Canada $ at fixed rate. A Swap dealer has agreed to arrange
a swap for them for a consideration of .5% spread. Design a swap in which both
the companies i.e. X Ltd and Y Ltd. are equally benefited. Also show the
related cash flow position of the transaction.
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IMT-136
FINANCIAL MARKETS
INSTITUTIONS AND SERVICES
SECTION – A
1. Explain
the process of capital formation.
2. Give
detailed chart depicting Organization of the Financial System in India.
3. Give
differences and similarities between New Issue Market and Stock Exchanges in
tabular format.
4. Give
detailed chart depicting Money Market Organization in India.
5. Distinguish
between CP and CD as understood under Indian Money market.
SECTION – B
1. List
the ways by new Issues are brought into the market. Explain any one of them in
detail.
2. Give
detailed chart depicting Regulatory Framework of Securities Market in India.
3. Who
or what is SEBI? List 5 of its powers and functions.
4. Write
a note on Buyback of securities.
5. Write
a note on primary market intermediaries in India.
SECTION – C
1. Write
a detailed on Depository System in India. Remember to give relevant
figures/diagrams
2. Write
a note on Forward Contracts .
3. Who
are venture capitalists? What do they do?
4. What
are NBFCs? Why are they important for an economy.
5. Write
a note on FDI.
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CASE STUDY – 1
1. Sequia
Investments Pvt Ltd is an American investment company. It wants to invest $1
Trillion in Indian Economy. Suggest it how should it invest. Give your answer
by providing various financial markets, institutions and services it should
avail for maximum profit.
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CASE STUDY – 2
2. Ajay
has got a new job in which his monthly take home is Rs.75,000/- He wants to
invest in Mutual Funds. You are an expert at mutual fund industry. Explain him
what are Mutual Funds and how they work and how will it be beneficial to him.
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IMT-142
STRATEGIC FINANCIAL
MANAGEMENT
SECTION – A
Question 1: What are the critical factors to be
observed while making capital budgeting decisions under capital rationing?
Question 2: The Moon Ltd. is examining two mutually
exclusive proposals. The management of the company uses certainty equivalent
(CE) approach to evaluate new investment proposals. From the following
information pertaining to these projects, advise the company as to which
project should be taken up.
|
Proposal A |
Proposal B |
|||
|
Year |
Cash flow after taxes |
CE |
Cash flow after taxes |
CE |
|
0 |
(25000) |
1.0 |
(25000) |
1.0 |
|
1 |
15000 |
.8 |
9000 |
.9 |
|
2 |
15000 |
.7 |
18000 |
.8 |
|
3 |
15000 |
.6 |
12000 |
.7 |
|
4 |
15000 |
.5 |
16000 |
.4 |
Question 3: What is the indifference point and why is
it so called? What is its usefulness?
Question 4: The following particulars are available
in respect of corporate:
1. Capital
employed Rs 500 million
2. Operating
profits after taxes for the last three years are :Rs 80 million, Rs 100 million
and Rs 90 million.
3. Riskless
rate of return 10%
4. Risk
premium relevant to business 5 %.
You are required to calculate the value of goodwill,
based on the present value of super profit method. Super profits are to be
computed on the basis of the average profits of 4 years. It is expected that
the firm is likely to earn super profits for the next 5 years only.
Question 5: What synergies exist in:
a) Horizontal mergers
b) Vertical Mergers
c) Conglomerate mergers
SECTION – B
Question 1: A machine purchased four years ago has
been depreciated to its current book value of Rs 50,000. The machine originally
had a projected life of 10 years and zero salvage value. A new machine will
cost Rs 80,000. Its installation cost estimated by the technician is Rs 20,000.
The technician also estimates that the installation of the new machine will
result in a reduced operating cost of Rs 30,000 per year for the next 6 years.
The old machine would be sold for Rs 20,000. The new machine will have a 6 year
life with no salvage value. The company’s income is taxed at 35%. Determine
whether existing machine should be replaced, if cost of capital 10%.
Depreciation is at straight line basis.
Question 2: What is the sensitivity approach for
dealing with the project risk? What is one of the most common methods used to
evaluate projects using sensitivity analysis?
Question 3: Distinguish between
· Gross
working capital and net working capital.
· Permanent
and temporary working capital.
Question 4: Following information is available in
respect of a trading firm:
· On
an average, debtors are collected after 45 days; inventories have an average
holding period of 75 days and creditor’s payment period on an average is 30
days.
· The
firm spends a total of Rs 120 lakh annually at a constant rate.
· It
can earn 10% on investments.
From the above information compute:
a) Cash cycle and cash turnover.
b) Minimum amount of cash required to meet the
payment obligations.
c) Savings by reducing the average inventory holding
period by 30 days.
Question 5: What is credit standards? What key
variables should be considered in evaluating possible changes in credit
standards?
SECTION - C
Question 1: From the following data determine the EOQ
· Annual
requirement, 12,00,000 units .
· Purchase
Price Rs 3 per unit.
· Ordering
cost Rs 50 per order.
· Carrying
cost of inventory, 10% of the cost.
Question 2: What are the features of trade credit as
a short term source of working capital finance? How can the cost of trade
credit be calculated?
Question 3: A call option at a strike price of Rs 170
is selling at a premium of Rs 15. At what share price on maturity will it break
even for the buyer of the option? Will the writer of the option also break even
at the same price?
Question 4: Explain and illustrate the option pay
off.
Question 5: A proforma cost sheet of a company
provides the following particulars:
|
Amount (Rs.) |
|
|
Raw material |
80 |
|
Direct labour |
30 |
|
Overheads |
60 |
|
Total cost |
170 |
|
Profit |
30 |
|
Selling price |
200 |
The following particulars are available:
Raw material in stock, on average one month; material
in process, on average half a month; finished goods in stock, on average one
month. Credit allowed by suppliers is one month, credit allowed to debtors is
two months, lag in payment of wages is one and a half weeks, lag in payment of
overhead expenses is one month; one fourth of the output is sold against cash;
cash at bank is expected to be Rs 25000. You are required to prepare a
statement showing the working capital needed to finance a level of activity of
1,04,000 units of production. Assume that production is carried out during the
year evenly.
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CASE STUDY – 1
Bose Engineering has had a very poor bad debt record
and, for this reason it has devised the method of credit control based on
analyses of its debt experience and of the personal characteristics of its
customers. It is ascertained its good and bad debt experiences from a sample of
actual orders executed. It ranked its customers using a points system from 0 to
100, where 0 denoted a class of customers with the highest percentage of bad
debts and 100 denoted a class with the highest percentage of good debts. These
analysis led to the preparation of following tables:
|
Point ratings |
Cumulative total no. Of orders
received |
Cumulative no. Of orders
received which turn out to be good debts |
Cumulative no. Of orders
received which turn out to be bad debts |
|
0 – 10 |
1150 |
200 |
950 |
|
0 – 20 |
2100 |
450 |
1650 |
|
0 – 30 |
2850 |
750 |
2100 |
|
0 – 40 |
3950 |
1500 |
2450 |
|
0 – 50 |
6600 |
4000 |
2600 |
|
0 – 60 |
8150 |
5400 |
2750 |
|
0 – 70 |
9100 |
6250 |
2850 |
|
0 – 80 |
9500 |
6600 |
2900 |
|
0 – 90 |
9750 |
6800 |
2950 |
|
0 – 100 |
10000 |
7000 |
3000 |
The table shows, cumulatively, an analysis of the
customers by class and an analysis of good & bad debts within each class
per 10,000 orders received.
During 2005, the company rejected all orders from
customers with a credit rating of 50 and below with the result that a sample
profit and loss account, based on the table of 10,000 orders received, appeared
as follows:
Sales (3400 orders @ Rs 14/- per order)
47600
Variable Costs:
Purchases 3400 @ Rs 3/-
10200
Distribution 3400 @ Rs 2/-
6800
17000
30600
Overheads:
Administration & Selling Expenses
18200
Bad Debts @ Rs14/-
5600
23800
6800
Assume that administration and selling expenses
remaining constant
a) Apply the 2005 prices and costs to the statistical
table to show cumulatively for the first five classes of customers the effect
on profits of declining to accept orders in each class. Present your answer in
columnar form in terms of contributions to overheads and profit lost, costs
saved and the total gain or loss.
b) Prepare a sample profit and loss account, similar
to that shown and based on 10000 orders received, assuming that all orders from
customers with a credit rating of 20 and below are rejected.
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CASE STUDY – 2
A ltd is considering takeover of B Ltd and C Ltd. The
financial data for the three companies are as follows:
|
Particulars |
A Ltd. |
B Ltd. |
C Ltd. |
|
Equity share capital of Rs. 10
each (Rs./million) |
450 |
180 |
90 |
|
Earnings |
90 |
18 |
18 |
|
Market price of each shares
(Rs.) |
60 |
37 |
46 |
Calculate the:
a. Price-Earnings exchange ratios.
b. Earnings per Share of A Ltd after the acquisition
of B Ltd and C Ltd separately.
c. Will you recommend the merger of either/both of
the companies? Justify your answer.
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IMT-58 – MANAGEMENT
ACCOUNTING
SECTION – A
Q1. Distinguish between Management accounting and
Financial Accounting.
Q2. What are the methods by which semi variable cost
can be split in its fixed and variable elements?
Q3. Medical aid co. manufactures a special product
“AID”. The following particulars were collected for the year
1998:
Monthly demand of AID
1,000 units
Cost of placing an order
Rs. 100
Annual carrying cost per unit
Rs 15
Normal usage
50 units per week
Minimum usage
25 units per weed
maximum usage
75 units per week
re-order usage
4 to 6 week
Compute from the above :
a. re-order quantity
b. re-order level
c. minimum level
d. maximum level
Q4. What do you understand by JIT?
Q5. Explain the term administrative overheads and
briefly discuss three methods of treatment thereof in cost accounts.
SECTION – B
Q1. How does ABC differ from the traditional costing
approach?
Q2. What is service costing? Describe the type of
industries in which such a system would be suitable.
Q3. Calculate the cost of each process and total cost
production from the data given below:
Process x
Process Y
Process Z
Materials
2,250
750
300
Labour
1,200
3,000
900
Direct Expenses:
Fuel
300
200
400
Carriage
200
300
100
Work overhead
1,890
2,580
1,875
The indirect expenses Rs. 1,275 should be apportioned
on the basis of wages.
Q4. What are the advantages of variable costing?
Q5. What do you mean by break-even analysis and
explain its uses and applications?
SECTION - C
Q1. Explain advantages and limitations of budgeting.
Q2. What is transfer prices? What are different types
of transfer prices?
Q3. Define expense centre. What is the suitability of
the measure of performance in an expense centre?
Q4. Differentiate between ‘sunk’ and ‘avoidable’
costs. What is the relevance of such a distinction for short-run decisions?
Q5. The details regarding composition and the weekly
wage rate of labour force engaged on a job scheduled to be completed in 30
weeks are as follows:
Standard
Actual
Category of
No. of Weekly wage
No. of Weekly wage
Workers
Laborers Rate
Laborers Rate
Skilled
75
60
70
70
Semi-skilled
45
40
30
50
Unskilled
60
30
80
20
The work is actually completed in 32 weeks. Calculate
the various labour cost variances.
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CASE STUDY – 1
A Ltd. furnishes the following data relating to the
year 2008.
1st half of the year
2nd half of the year
Sales (Rs.)
45,000
50,000
Total cost (Rs.)
40,000
43,000
Assuming that there is no change in prices and
variable cost and that the fixed expenses are incurred equally in the two half
year period, calculate-
1. P/V Ratio
2. Fixed expenses
3. Break even sales
4. Percentage of margin of safety to total sales.
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CASE STUDY - 2
Goodluck Ltd. is currently operating at 75% of its
capacity. In the past two years, the level of operations were 5f5% and 65%
respectively. Presently, the production is 75,000 units. The company is
planning for 85% capacity level during 2013 – 2014. The cost details are as
follows:
55%
65%
75%
Rs.
Rs.
Rs.
Direct Materials
11,00,000 13,00,000
15,00,000
Direct labour
5,50,000 6,50,000
7,50,000
factory overheads
2,00,000 2,00,000
2,00,000
Selling overheads
3,10,000 3,30,000
3,50,000
Administrative overheads
3,20,000 3,60,000
4,00,000
--------------
---------------
----------------
24,40,000
28,00,000
31,60,000
--------------
---------------
----------------
Profit is estimated @ 20% on sales.
The following increases in costs are expected during
the year.
In percentage
Direct material
8
Direct labour
5
Variable selling overheads 8
Fixed factory overheads
10
Fixed selling overheads
15
Administrative overheads
10
Required: Prepare flexible budget for the period 20X1
– 20X2 at 85% level of capacity. Also ascertain profit and contribution
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