CA Final Exam Papers Group I Management Accounting and Financial Analysis Nov 2010

CA Final Exam Papers Group I

Management Accounting and Financial Analysis – Nov 2010

 

This Paper has 18 answerable questions with 0 answered.


Total No. of Questions — 7]
Time Allowed : 3 Hours

Maximum Marks : 100
Answers to questions are to be given only in English except in the cases of candidates who have opted for Hindi medium. If a candidate who has not opted for Hindi medium, his answers in Hindi will not be valued.
Q.No. 1 is compulsory.
Attempt any five questions from the remaining six questions.
Working notes should form part of the answer.
Marks
1. (a) A company passes through three stages : growth, transition and maturity stage. The growth stage is expected to last for 2 years, while the transition stage lasts for 3 years. During the transition stage the growth rate of dividends changes from 18% to 9%. What would be the rate of dividend at the end of the first year of the transition stage? 4×5=20 (0)
(b) M/s X Ltd. has paid a dividend of Rs.2.5 per share on a face value of Rs.10 in thefinancial year ending on 31st March, 2009. The details are as follows :
Current market price of share
Growth rate of earnings and dividends
Beta of share
Average market return
Risk free rate of return
Calculate the intrinsic value of share. Rs.60
10%
0.75
15%
9%
(0)
(c) If the market price of the bond is Rs.95; years to maturity = 6 yrs.; coupon rate = 13% p.a. (paid annually) and issue price is Rs.100. What is the yield to maturity ? (0)
(d) A convertible bond with a face value of Rs.1,000 is issued at Rs.1,350 with a coupon rate of 10.5%. The conversion rate is 14 shares per bond. The current market price of bond and share is Rs.1,475 and Rs.80 respectively. What is the premium over conversion value? (0)
2. (a) P Ltd. is considering take–over of R Ltd. by the exchange of four new shares in P Ltd. for every five shares in R Ltd. The relevant financial details of the two companies prior to merger announcement are as follows :
P Ltd. R Ltd.
Profit before Tax (Rs. Crore)
No. of Shares (Crore)
P/E Ratio
Corporate Tax Rate 30% 15
25
12 13.50
15
9
You are required to determine:

(i) Market value of both the company.
(ii) Value of original shareholders.
(iii) Price per share after merger.
(iv) Effect on share price of both the company if the Directors of P Ltd. expect their own pre–merger P/E ratio to be applied to the combined earnings.
10 (0)
(b) Red Ltd. is considering a project with the following Cash flows :
(Rs.)
Years Cost of Plant Recurring Cost Savings
0
1
2 10,000
4,000
5,000
12,000
14,000
The cost of capital is 9%, Measure (he sensitivity of the project to changes in the levels of plant value, running cost and saving (considering each factor at a time) such that the NPV becomes zero. The P.V. factor at 9% are as under:

Years Factor
0
1
2 1
0.917
0.842
Which factor is the most sensitive to affect the acceptability of the project ?

6 (0)
3. (a) Aeroflot airlines is planning to procure a light commercial aircraft for flying classclients at an investment of Rs.50 lakhs. The expected cash How after lax for next three years is as follows :
(Rs. in Lakh)
Year 1 Year 2 Year 3
CFAT Probability CFAT Probability CFAT Probability
15
18
22
35 .1
.2
.4
.3 15
20
3
45 .1
.3
.4
.2 18
22
35
50 .2
.5
.2
.1
The company wishes to consider all possible risk factors relating to an airline.

The company wants to know –

(i) the expected NPV of this proposal assuming independent probability distribution with 6 per cent risk free rate of interest, and
(ii) the possible deviation on expected values.
12 (0)
(b) An importer requests his bank to extend the forward contract for US $ 20,000 which is due for maturity on 30th October, 2010, for a further period of 3 months. He agrees to pay the required margin money for such extension of the contract.
Contracted Rate – US $ 1 = Rs.42.32
The US Dollar quoted on 30–10–2010 : –
Spot–41.5000 741.5200
3 months’ Premium – 0.87% / 0.93%
Margin money for buying and selling rate is 0.075% and 0.20% respectively.

Compute:

(i) The cost to the importer in respect of the extension of the forward contract, and
(ii) The rate of new forward contract.
4 (0)
4. An investor has decided to invest Rs.1,00,000 in the shares of two companies, namely, ABC and XYZ. The projections of returns from the shares of the two companies along with their probabilities are as follows :
Probability ABC(%) XYZ(%)
.20
.25
.25
.30 12
14
–7
28 16
10
28
–2
You are required to

(i) Comment on return and risk of investment in individual shares.
(ii) Compare the risk and return of these two shares with a Portfolio of these shares in equal proportions.
(iii) Find out the proportion of each of the above shares to formulate a minimum risk portfolio.
16 (0)
5. (a) A mutual fund company introduced two schemes i.e. Dividend plan (Plan–D) and Bonus plan (Plan–B). The face value of the unit is Rs.10. On 1-4-2005 Mr. K invested Rs.2,00,000 each in Plan–D) and Plan–B when the NAV was Rs.38.20 and Rs.35.60 respectively Both the plans matured on 31–3–2010.
Particulars of dividend and bonus declared over the period are as follows:

Date Dividend Bonus Net Asset Value(Rs.)
% Ratio Plan–D Plan–B
30–9–2005
30–6–2006
31–3–2007
15–9–2008
30–10–2008
27–3–2009
11–4–2009
31–3–2010 10

15
13

16
1:5

1:8

1:10 39.10
41.15
44.20
45.05
42.70
44.80
40.25
40.40 35.60
36.25
33.10
37.25
38.30
39.10
38.90
39.70
What is the effective yield per annum in respect of the above two plans ?

10 (0)
(b) The earnings per share of a company is Rs.10 and the rate of capitalisation applicable to it is 10 per cent. The company has three options of paying dividend i.e. (i) 50%, (ii) 75% and (iii) 100%. Calculate the market price of the share as per WALTER’s model if it can earn a return of (a) 15, (b) 10 and (c) 5 per cent on its retained earnings. 6 (0)
6. (a) Sensex futures are traded at a multiple of 50. Consider the following quotations of Sensex futures in the 10 trading days during February, 2009:
Day High Low Closing
4–2–09
5–2–09
6–2–09
7–2–09
10–2–09
11–2–09
12–2–09
14–2–09
17–2–09
18–2–09 3306.4
3298.00
3256.20
3233.00
3281.50
3283.50
3315.00
3315.00
3278.00
3118.00 3290.00
3262.50
3227.00
3201.50
3256.00
3260.00
3286.30
3257.10
3249.50
3091.40 3296.50
3294.40
3230.40
3212.30
3267.50
3263.80
3292.00
3309.30
3257.80
3102.60
Abhishek bought one sensex futures contract on February, 04, The average daily absolute change in the value of contract is Rs.10,000 and standard deviation of these changes is Rs.2,000. The maintenance margin is 75% of initial margin.

You are required to determine the daily balances in the margin account and payment on margin calls, if any.

8 (0)
(b) The share of Galaxy Ltd. of a face value of Rs.10 is being quoted at Rs.24, The company has a plan to make a right issue of one equity share for every four shares currently held at a premium of 40% per share.
You are required to :

(i) Determine the minimum price that can be expected of share after the issue.
(ii) Calculate the theoretical value of the rights alone
(iii) Show the effect of the right issue on the wealth of a shareholder who has 1500 shares, if
(a) he sells the entire rights, and
(b) he ignores the rights.
8 (0)
7. Attempt any FOUR of the following : 4×4=16
(a) What is insider trading practice ? (0)
(b) What are the features of Futures Contract ? (0)
(c) Explain briefly the salient features of Foreign Currency Convertible Bonds. (0)
(d) What is reverse merger ? (0)
(e) What are the guidelines of Public Investment Board for project appraisal ? (0)

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