Advanced Financial Management - November 2022

(a) Alfa Ltd. wants to acquire Beta Ltd. and has offered a swap ratio of 1 : 2 (0.5 shares for every one share of Beta Ltd.). Following information is provided: Alfa Ltd. Beta Ltd. Profit after tax (2) 18,00,000 3,60,000 Equity shares outstanding (Nos.) 6,00,000 1,80,000 EPS (#) 3 2 PE Ratio 10 times 7 times Market price per share (@) 30 14 (i) You are required to determine: (a) the number of equity shares to be issued by…

(a) MNO Ltd., a company based in India, manufactures very high quality modern furniture and sells them to a small number of retail outlets in India and Nepal. It is facing tough competition. Recent studies on marketability of product have clearly indicated that the customers are now more interested in variety and choice rather than exclusivity and exceptional quality. Since the cost of quality wood in India is very high, the company is reviewing the proposal for import of wood…

(a) Details about long term portfolio of shares of an investor is as below: Shares No. of shares (Lakh) Market Price per share Beta K Ltd. 6 250 1.4 L Ltd. 8 375 1.2 M Ltd. 4 125 1.6 The investor thinks that the risk of portfolio is very high and wants to reduce the portfolio beta to 0.91. He is considering below mentioned alternative strategies: (i) Dispose a part of his existing portfolio to acquire risk free securities, or…

(a) Following is the information related to three mutual funds: Year MF-A MF-B MF-C 2020 10% 5% 14% 2021 8% 10% 10% 2022 12% 8% 18% Correlation between market and mutual fund: MF-A MF-B MF-C Correlation with market 0.45 0.25 0.65 Variance of the market is 9% and rate of return of government bond is 7%. You are required to Rank the Mutual fund using Sharpe’s ratio and Treynor's ratio. (8 Marks) (b) M/s. Siri Ltd. Has a surplus amount…

(a) Following is the information related to return on shares of three different companies : Years | ALtd. B Ltd. C Ltd. 2018 2% 3% 5% 2019 6% 8% 7% 2020 13% 14% 15% 2021 7% 9% 11% Required: (i) Construct maximum number of portfolio and its return, if each portfolio consists of any two Company's shares in proportion of 65% and 35% and suggest which portfolio provides highest return. PAPER - 2: STRATEGIC FINANCIAL MANAGEMENT 47 (ii) Calculate portfolio…

(a) Mr. X wants to invest # 1,00,000 in the 7 years 8% bonds in the market (Face Value ? 100) which were issued 2 years ago. (i) You are requested to advise him what is the maximum price for bonds to be paid in (1) If Mr. X is expecting minimum 9% return on the bonds (2) If Mr. X is expecting minimum 7% return on the bonds (3) If the present rate of similar bonds issued is 8.25%…