Prelim 1:- Special Studies in Finance
Solve all questions. Solve only 2 questions from Q1 -4.
Q1.A. Shweta Ltd. has purchased machinery from Shreya Ltd. on hire purchase basis. The details of purchase are: Cash Price Rs. 31,70,000. Down Payment 20% and remaining amount to be discharged in four yearly installments of Rs. 8,00,000 each. Pass the journal entries in Shweta’s books for the first 2 years only. (7.5 marks)
Q1B. Bravo Ltd. furnishes the following data for the year ended 31st March, 2010: Depreciation provided as per accounting records amounted to Rs. 50,00,000 whereas the depreciation provided as per tax records, under the block of assets concept amounted to Rs. 87,50,000. Unamortized preliminary expenditure as per tax records amounted to Rs. 7,00,000. The income tax rate applicable is 40% and there is adequate evidence of future profit sufficiency.How much deferred tax asset/liability should be recognized as transition adjustment, as per Accounting Standard – 22 as issued by the Institute of Chartered Accountants of India? (7.5 marks)
1 C.. Hammer Ltd. furnishes the following data regarding its six segments for the year ended 31st March, 2010: (Rs. in Lakhs)
Segments P Q R S T U Total
Segment Assets 1500 3100 400 300 400 300 6000
Segment Results 250 (950) 50 50 (50) 150 (500)
Segment Revenue 200 400 150 100 100 50 1000
Identify the reportable segments and advise the management of Hammer Ltd. keeping in view the provisions of Accounting Standard 17 on Segment Reporting as issued by the ICAI (7.5 marks)
Q2. A. Calculate EVA from the following data for the year ended 31st March 2003. (7.5 marks)
Average Debt (Rs. Crores) 200
Average Equity (Rs. Crores) 110
Cost of Debt (Post Tax) 7.72%
Cost of Equity 16.54%
Profit after tax, before exceptional item 61.64
Interest 20
B. What are the merits and demerits of investing in a mutual fund (7.5 marks)
C. A company has to decide between 2 machines with economic life of 5 years. Scrap value would be 0. The investments and after tax profits are given. Compute payback period, NPV, PI. Figures in lacs. Disocunting factor 10% (7.5 marks)
Machine Investment 1 2 3 4 5
A 25 0 5 20 14 6
B 40 10 14 16 17 8
Q 3. A. A company sold goods worth 20,000$ on July 1st 2014 (1$= 60Rs) to Ronald Ltd in USA. 20% was received immediately. Balance payment was made as under
20% October 1st, 2014 1$= Rs 57
20% December 31st, 2014 1$= Rs 62
20% March 1st, 2015 1$= 61 Rs
20% April 7th, 2015 1$= 67 Rs
On March 31, 2015 1$= 59 Rs.
B. Make an amortization table for Loan taken Rs 10,00,000. Interest rate 15%. Annual installment is equal. Payment in 6 years. (7.5 marks)
c. Explain the various participants in the Indian capital markets (7.5 marks)
Q4. A. Explain the process of IPO (7.5 marks)
Q4 B. Foxtrot Ltd. issued shares of Rs. 50 each amounting to Rs. 500 lakhs. The company appointed a merchant banker as book-runner who collected information from various investors to book-building purpose. The quote prices of various investors are:
A quoted price for each share @ Rs. 47.50 for Rs. 50 Lakhs
B quoted price for each share @ Rs. 49.00 for Rs. 250 Lakhs
C quoted price for each share @ Rs. 50.50 for Rs. 50 Lakhs
D quoted price for each share @ Rs. 50.00 for Rs. 100 Lakhs
E quoted price for each share @ Rs. 49.50 for Rs. 50 Lakhs
Based on the above information and data, compute the weighted average issue price as would be calculated by the merchant banker for book-building purposes. (7.5 marks)
Q4 c. Royal Ltd IPO opened on 6th October 2015 and closed on 8th October 2015. Company issued 20 crores shares in the band of 1200-1300. Public applied for 200 crores shares. The issue price was Rs 1250 and average application price was Rs 1270. The refund and allotment was done on 20th October 2015. Pass necessary entries.
Q5. In Mumbai the suburban railway services are inadequate for the ever rising population. Every day there are millions of people flocking in this city in search of a better quality of livelihood. In order to meet the daily commutation requirements there is a need to provide rail transportation services through metro rail. The task of providing such infrastructure project is shouldered by Tata’s. For this purpose the required technology is imported from Switzerland. Also training is provided by the European company to Indian technicians for repairs and maintenance. Promoters are B.E. (Civil) and having 122 years past experience of operating in India. For setting up a Metro Rail at Mumbai the technical requirements are 4000 Sq. Ft. land for Railway Stations and Railway tracks 20,000 sq. ft administration building, and others a total 8,200 acres land. The members of Directors family are also possessing MBA qualifications and take keen interest in the business activities.
Cost of Project Rs. in Crores
Land & Site Development 400
Plant & Machinery 200
Working Capital 100
Total Requirements 700
Sources of Finance
Additional Equity Share Capital 200
Internal Earnings 100
Term Loan (Interest @ 11% p.a.) 400
Total Sources 700
Depreciation SLM @ 20% p.a. Tenure of term loan 5 years. Principal to be repaid in equal installments. Income tax @ 35%. 100% Tax holiday for initial 4 years. Life of project 5 years. ROI @ 30% for initial 2 years which will increase to 35% for the remaining years.
Prepare flash report and calculate DSCR for all the years. Give your recommendation. (15 MARKS)
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