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IMT-41: Indian Financial Service-MT1

IMT-41: Indian Financial Service-MT1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

IMT - 41: INDIAN FINANCIAL SERVICE

PART - A

Q1. Examine the role that financial systems play in furthering economic development, with special reference to the Indian context.

Q2. What functions do financial systems perform?

Q3. What are the general obligations and responsibilities of merchant bankers? What services do they render?

Q4. Briefly discuss the various parties involved in the new issues market.

Q5. Explain the different methods by which shares can be issued in the new issues market.

PART - B

Q1. Differentiate between mergers, amalgamations and acquisitions. Analyse the managerial motives behind mergers and acquisitions.

Q2. Explain the following models of valuation of target with examples:

(i) Earnings based valuation model

(ii) Asset based valuation model

(iii) Discounted cash flow model

Q3. Explain loan syndication.

Q4. What are derivative instruments? Explain the different financial derivative instruments.

Q5. Analyse the role played by financial instruments in the money market.

PART - C

Q1. Discuss the regulations that govern the venture capital industry in India.

Q2. Trace the development of the mutual funds industry in India.

Q3. Explain the categories into which mutual funds are divided.

Q4. What are financial leases? Explain the different types of financial leases.

Q5. TVS Limited takes a truck on lease on 01-01-2000 from Z Leasing Limited.

Fair value of the asset Rs 5, 00,000/-

Residual value Nil - After 5 years

Lease rentals Rs 1, 38,700/- for 5 years payable at the end of each year.

 

Show how the transaction is to be recorded in the books of TVS Company Limited for the first two years. Also show the profit and loss account and balance sheet for these two years.

CASE STUDY -1

XYZ Ltd is considering acquiring an additional computer to supplement its time-share computer services to its clients. It has two options:

 

a. To purchase the computer for Rs 22,00,000

b. To lease the computer for 3 years from a leasing company for Rs 5,00,000 as annual lease rent plus 10 per cent of gross time-share service revenue. The agreement also requires an additional payment of Rs 6,00,000 at the end of the third year. Lease rents are payable at the end and the computer reverts to the lessor after the contract period.

 

The company estimates that the computer under review now will be worth Rs 10 lakh at the end of the third year. Forecast revenues are:

Year Rs
1 22,50,000
2 25,00,000
3 27,50,000

Annual operating costs (excluding depreciation/ lease rent of computers) are estimated at Rs 9,00,000 with an additional Rs 1,00,000 for start-up and training costs at the beginning of the first year. These costs are to be borne by the lessee. XYZ Ltd borrows funds at 16 per cent interest to finance the acquisition of the computer; repayments are to be made according to the following schedule:

Year end Principal (Rs) Interest (Rs) Total (Rs)
 
1 5,00,000 3,52,000 8,52,000
 
2 8,50,000 2,72,000 11,22,000
 
3 8,50,000 1,36,000 9,86,000

The company uses the straight-line method to depreciate its assets and pays 50 per cent tax on its income.


Question

The management of XYZ Ltd approaches you, as a finance manager, for advice. Which alternative would you recommend and why?

 

Note: Present value factor at 8 per cent and 16 per cent rate of discount:

Year 8 per cent 16 per cent
 
1 0.926 0.862
 
2 0.875 0.743
 
3 0.794 0.641

CASE STUDY - 2

 

East Co. Ltd is studying the possible acquisition of Fost Co. Ltd by way of a merger. The following data are available in respect of the companies:

Particulars East Co. Ltd Fost Co. Ltd
 
Earning after tax (Rs) 2,00,000 60,000
 
Number of equity shares 40,000 10,000
 
Market value per share (Rs) 15 12

Questions

a) If the merger goes through by exchange of equity shares and the exchange ratio is based on the current market price, what is the new earning per share for East Co. Ltd?

 

b) Fost Co. Ltd wants to be sure that the earnings available to its shareholders will not be diminished by the merger. What should the exchange ratio be in that case?

 

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