Special Studies in Finance
Q1. Explain in short (1*5=5)
- What is operating lease
- Sweat equity
- Credit rating
Solve any 2 (2*5=10)
- Kamal has purchased machinery from Suman 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. Prepare a table to show the analysis of payment and calculation of interest
- Calculate EVA from the following data for the year ended 31st March 2003.
|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|
- 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?
Q2 B. 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|
|Sources of Finance|
|Additional Equity Share Capital||200|
|Term Loan (Interest @ 11% p.a.)||400|
Depreciation SLM @ 20% p.a. Tenure of term loan 5 years. Principal to be repaid in equal installments. Income tax @ 35%. 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)
Sec 2 . Solve any 3(3*10=30)
Q 3. Kutub Minar Ltd. acquired a machine on 1.4.2007 costing US $ 2,00,000. The suppliers agreed to the following terms of payment
|Date||Terms of payment|
|1.4.2007||Down Payment 40%|
The company depreciates machinery @ 10% on the Straight Line Method. The rate of exchange is steady at US $ 1 = Rs.47 upto 30.9.2008. On 1.10.2008, due to an official revaluation of rates, the exchange rate is adjusted to US $ 1 = Rs.57. Show the extracts of the relevant entries in the Profit and Loss Account for the year ending 31st March, 2009 and the Balance Sheet as on that date, showing such workings as necessary as per AS-11.
Q4. A. 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.
- Hammer Ltd. furnishes the following data regarding its six segments for the year ended 31st March, 2010: (Rs. in Lakhs)
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
Q5. Explain the book building process in detail
Q6. Explain the advantages and disadvantages of Mutual funds.
Prof Vipin Saboo 9820779873