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CA PRAVIIN MAHAJAN SFM CLASSES 1/30, Lalita Park, Laxmi Nagar, near laxmi nagar 9354 720 515 Gurudwara, Opposite Metro Pillar 24, NewDelhi
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SOLUTION TO MAY 19 NEW CA FINAL SFM
By CA PRAVIIN MAHAJAN
(Practical Questions)
Conclusion: New syllabus paper for SFM was relative simple with almost all
repetitive questions, barring 1 question of External commercial borrowing and
new adjustments in couple of questions. Distinction can be easily claimed in
this paper.
Questions Chapter Marks
Q1a Corporate val ( Val of business)
Economic value added 8
Q1b Security val (Dividend) 8
Q1c Theory 4
Q2a Merger and Acquisition 8
Q2b security valuation
“ Buy Back of Shares” 8
Q2c Theory 4
Q3a Portfolio Management 8
Q3b Derivative 8
Q3c Theory 4
Q4a Mutual Fund 8
Q4b Corporate Valuation 8
Q4c Theory 4
Q5a Derivative 8
Q5b Forex 8
Q5c Theory 4
Q6a Forex 8
Q6b Forex
“ International financial Management” 8
Q6c Theory 4
Chapter wise coverage
1. Derivative 16
2. Forex 24
3. Corporate Valuation 16
4. Security Valuation 16
5. Mutual Fund 8
6. Portfolio Management 8
7. Merger and Acquisition 8
CA PRAVIIN MAHAJAN SFM CLASSES 1/30, Lalita Park, Laxmi Nagar, near laxmi nagar 9354 720 515 Gurudwara, Opposite Metro Pillar 24, NewDelhi
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Q1a. Compute economic value added (EVA) of Goodluck Limited. from the following
information
Profit and loss statement
Particulars Rs (in lacs)
a Income
Revenue from operations 2000
b Expenses
Direct expenses 800
Indirect expenses 400
c. Profit before interest and tax (a – b) 800
d. interest 30
e. profit before tax (c – b) 770
f Tax 231
g Profit after tax (e – f) 539
Balance sheet
Particulars Rs in lakh
Equity and liabilities
a Shareholders fund
Equity share capital 1000
Reserves and surplus 600
b Non current liabilities
Long term borrowings 200
c Current liabilities 800
Total 2600
Assets :
a. Non current assets 2000
b. Current assets 600
Total 2600
Other information
i. Cost of debt is 15% ii. cost of equity (i.e shareholders expected return) is 12% iii. tax rate is 30% iv. bad debts provision of Rs 40 lacs is included in indirect expenses and Rs 40
lacs reduced from receivables in current assets
Author’sNote : Simple question of EVA with adjustment of Provisions
Answer: EVA = EBIT ( 1 – Tax rate) - WACC x Capital Employed
Adjusted EBIT = EBIT + Provision for Bad debts
= 800 + 40
= 840
CA PRAVIIN MAHAJAN SFM CLASSES 1/30, Lalita Park, Laxmi Nagar, near laxmi nagar 9354 720 515 Gurudwara, Opposite Metro Pillar 24, NewDelhi
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Capital employed = Equity share capital + reserves + Provisions +
long term borrowings
= 1000 + 600 + 40 + 200
= 1840
WACC = WE KE + WD Kd
= 1640
1840 x 12 +
200
1840 x 15
= 12.33 %
EVA = 840 ( 1 – 0.30) - 0.1233 x 1840
= 588 - 226.87
= 361.13
b. The shares of G Limited are currently being traded at Rs 46.The company published
its results for the year ended 31st March 2019 and declared a dividend of Rs 5. The
company made a return of 15% on its capital and expect that to be the norm in which
it operates. G limited also expects the dividends to grow at 10% for the first three
years and thereafter at 5%
You are required to advise whether the share of the company is being traded at a
premium or discount
PVIF at 15% for the next 3 years is 0.870 , 0.75 6 and 0.658 respectively.
Author’s Note: Simple question of dividend.
Answer: P0 = Rs 46
D0 = Rs 5 g = 1 - 3years = 10%
Ke = 15% 4 and above = 5%
Intrinsic value of share is present value of all future cash outflows.
P0 = Present value of dividend from + Present value of CMP
1 to 3 years at end of 4th year.
Statement of Market Price
Period Dividend Factor Present value
1 5.5 0.870 4.785
2 6.05 0.756 4.574
3 6.66 0.658 4.382
4 6.993
0.15 − 0.05 = 69.93 0.658 46.014
Current Market Price 59.76
Since MP < Intrinsic value, so investor should purchase the share
c. State the important features of national pension scheme. (NPS)
CA PRAVIIN MAHAJAN SFM CLASSES 1/30, Lalita Park, Laxmi Nagar, near laxmi nagar 9354 720 515 Gurudwara, Opposite Metro Pillar 24, NewDelhi
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2a Given is the following information
Day limited Night limited
Net earnings Rs 5 crores Rs 3.5 crores
No. of equity shares 10 lakh 7 Lakh
The shares of day Limited and night Limited trade at 20 and 15 times their
respective PE ratios.
Day limited considers taking over night Limited by paying Rs 55 crores considering that the market price of Night Limited reflects its true value. It is considering both the following options. i. takeover is funded entirely in cash ii. takeover is funded entirely in stock You are required to calculate the cost of the takeover and advise day Limited on the best alternative. Author’s Note : Basic question of True cost of Merger, Merger and Acquisition
Answer :
PE ratio of Night Ltd = 15
EPS of Night 3.5 𝑐𝑟𝑜𝑟𝑒𝑠
7 𝑙𝑎𝑘ℎ = 50
MP of night PE x EPS = 15 x 50 = 750 Market cap of Night = 7lakh x 750 = 52 .50 crore PE ratio of Day Ltd = 20
EPS of Day Ltd 5 𝑐𝑟𝑜𝑟𝑒𝑠
10𝑙𝑎𝑘ℎ = 50
MP of Day Ltd = 20 x 50 = 1000 If takeover is funded entirely in cash True Cost of Merger = Amount paid to - Pre value of
vendor company vendor company = 55 crore - 52.5 crore = 2.5 crore If takeover is funded entirely in stock
True Cost of Merger = Amount paid to - Pre value of vendor company vendor company
= 55 crore - 52.5 crore = 2.5 crore
Day Ltd Paid 55 crores, whether it is by cash or by stock, so true cost of merger will be same.
CA PRAVIIN MAHAJAN SFM CLASSES 1/30, Lalita Park, Laxmi Nagar, near laxmi nagar 9354 720 515 Gurudwara, Opposite Metro Pillar 24, NewDelhi
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b. ABB Limited has a surplus cash balance of rupees 180 lacs and wants to distribute 50% of it to the equity shareholders. The company decides to buy back equity shares. The company estimates that its equity share price after re-purchase is likely to be 15% above the buyback price, if the buyback route is taken other information is as under:
i. number of equity shares outstanding at present (face value Rs 10
each) is 20 lacs
ii. The current EPS is Rs 5
You are required to calculate the following
i. the price at which the equity shares can be repurchased if market
capitalisation of the company should be rupees 400 lacs after buyback
ii. number of equity shares that can be reproduced 3 the impact of equity
shares repurchase on the EPS assuming that the net income remains
unchanged
Author’s note: Simple repetitive question of Buy back of shares from security
valuation.
Answer Surplus cash = 180 lacs
Distributed = 50% of 180 lac = 90 lac
a. Market cap after buyback = No. of shares after Buyback x MP after buyback . .
400 lac = ( 20,00,000 - 90,00,000
𝑥 ) 1.15x
400 lac = 23 lac x – 103.5 lac
296.5 lac = 23 lac x
X = 12.891
a. No. of shares bought = 90,00,000
12.891 = 6,98,145 shares
b. EPS after buyback = 𝑡𝑜𝑡𝑎𝑙 𝑒𝑎𝑟𝑛𝑖𝑛𝑔𝑠
𝑁𝑜.𝑜𝑓 𝑠ℎ𝑎𝑟𝑒𝑠 𝑎𝑓𝑡𝑒𝑟 𝑏𝑢𝑦𝑏𝑎𝑐𝑘
= 20 𝑙𝑎𝑐 𝑋 5
20,00,000−6,98,145 = 7.681
After buyback EPS per share is increased by 2.681/5 = 53.62%
c. List the main applications of value at risk VAR.
3a Following are the details of a Portfolio consisting of three shares
Shares portfolio beta expected total
weight Return Variance
X Limited 0.3 0.5 15 0.020
Y Limited 0.5 0.60 16 0.010
Z Limited 0.2 1.20 20 0.120
Standard deviation of market portfolio return is 12%
You are required to compute the following
1 the portfolio beta
2 residual variance of each of the three shares
3 portfolio variance using Sharpe index model.
CA PRAVIIN MAHAJAN SFM CLASSES 1/30, Lalita Park, Laxmi Nagar, near laxmi nagar 9354 720 515 Gurudwara, Opposite Metro Pillar 24, NewDelhi
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Author’s Note: Simple question of Portfolio management
Answer:
i. Beta of portfolio is weighted average of Beta of each security in portfolio
Statement of Portfolio Beta
Shares weight Beta W x Beta
X 0.3 0.50 0.15
Y 0.5 0.6 0.30
Z 0.2 1.20 0.24
0.69
ii. Residual variance of Each of 3 shares
Residual variance = Total variance - Systematic Risk ( β2. σ2M)
X = 0.020 x 100 x 100 - 0.52 + 122 = 164
Y = 0.010 x 100 x 100 - 0.62 + 122 = 48.16
Z = 0.120 x 100 x 100 - 1.202 + 122 = 992.64
iii. Portfolio Variance = Systematic Risk Portfolio + Unsystematic risk
Portfolio
= β2𝜎𝑀2 + 𝑊𝑋
2USRx + 𝑊𝑌2USRy + 𝑊𝑍
2USRZ
=0.692 x 122 + 0.32 164 + 0.52 x 48.16 + 0.22 x 992.64
= 68.56 + 14.76 + 12.04 + 39.71
= 135.07
b. Mr John established the following spread on the TTK Limited stock:
i. Purchased one 3 month put option with a premium of Rs15 and an exercise
price of rupees 900.
ii. Purchased one 3 month call option with a premium of Rs 90 and exercise
price of Rs 1100.
TTK Limited stock is currently selling at Rs 1,000. Calculate gain or loss if the price of
stock of TTK Limited
i. Rs 1000 after 3 months
ii. Falls to Rs 700 after 3 months
iii. Reasons to Rs 1200 after 3 months assume the size of option is 200 shares
of TTK Limited
Author’s Note: Simple repetitive question of derivative. Q14 of Book, Pg 1.9
Answer
Call Put
Period 3 month 3 month
Strike price 1100 900
Premium 90 15
CA PRAVIIN MAHAJAN SFM CLASSES 1/30, Lalita Park, Laxmi Nagar, near laxmi nagar 9354 720 515 Gurudwara, Opposite Metro Pillar 24, NewDelhi
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i. If Price of TTK remains Rs 1000 after 3 months
Statement of Profit/Loss
Rs
Premium Paid
Call 90
Put 15
Call MP 1000
EP 1100
Since MP < EP, call will lapse -
Put MP 1000
EP 900
Since EP< MP,Put will lapse -
Loss of investor 105
Total loss on 1200 options 1200 x 105 1,26,000
ii. If Price of TTK after 3 months is 700
Statement of Profit/loss
Premium Paid Rs
Call 90
Put 15
Call MP 700
EP 1100
Since MP < EP, call will Lapse -
Put EP 900
MP 700
Since EP > MP, Holder will exercise Put. Holder
will buy share from market @ 700 and sell to
writer at 900. Profit on Put 200
Net Profit 95
Total Profit on 1200 options 1200 x 95 1,14,000
iii. If Market Price of TTK after 3 months is 1200
Statement of Profit/Loss
Rs
Premium Paid
Call 90
Put 15
Call
MP 1200
EP 1100
Since MP > EP, Holder will exercise
Call. Holder will buy share from writer for Rs 1100
And sell in market for 1200. Profit on call 100
Loss to investor 5
Total loss on 1200 option 1200 x 5 6000
CA PRAVIIN MAHAJAN SFM CLASSES 1/30, Lalita Park, Laxmi Nagar, near laxmi nagar 9354 720 515 Gurudwara, Opposite Metro Pillar 24, NewDelhi
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c. Briefly explain the steps involved in the mechanism of securitization.
4a A mutual fund company introduces to schemes - Dividend plan and Bonus plan the
face value of the unit is Rs10 on 1-4 -2014. Mr R invested Rs Lakh in Dividend plan
and Rs10 lakh in bonus plan. The NAV of dividend plan is Rs 46 and NAV of Bonus
plan is Rs 42. Both the plans matured on 31-03-2019. The particulars of dividend and
bonus declared over the period are as follows;
Date Dividend Bonus NAV of NAV of
% ratio dividend plan bonus plan
Rs Rs
31-12- 2014 12% - 47.0 42.0
30-09-2015 1:4 48.0 43.0
31-03- 2016 15% - 49.5 41.5
30-09-2017 1:6 50.0 44.0
31-03-2018 10% - 48.0 43.5
31-03-2019 - 49.0 44.0
You are required to calculate the effective yield per annum in respect of the above
two plans.
Author’s Note: Simple Repetitive question of Mutual Fund From Manual.
Answer:
Plan A : Dividend Plan
Amount Invested: Rs 5,00,000
NAV on date of Investment Rs 46
Number of Units purchased 10,869.57
Statement of Units in hand on 31-03-19
Date Op.Units Dividend NAV Units purchased Cl Units
1/4/14 - - 46 10,869.57 10,869.57
31/12/14 10,869.57 13,043.48 47 277.52 11,147.09
31/03/16 11,147.09 16,720.64 49.5 337.79 11,484.88
31/03/18 11,484.88 11,484.88 48 239.27 11,724.15
Statement of annual return
Cash received on sale of units 11,724.15 x 49 574483.35
Cost of Investments 5,00,000
Profit 74,483.35
Rate of Return = 74,483.35
5,00,000 x 100 x
1
5 = 2.98% p.a
Plan B: Bonus Plan
Amount Invested 1,00,000
NAV 42
Units Purchased 23,809.52
CA PRAVIIN MAHAJAN SFM CLASSES 1/30, Lalita Park, Laxmi Nagar, near laxmi nagar 9354 720 515 Gurudwara, Opposite Metro Pillar 24, NewDelhi
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Statement of Units on 31/03/19
Date Op Units Bonus Cl Units
1/4/14 - - 23,809.52
30/9/15 23,809.52 5952.38 29761.9
30/09/17 29761.9 4960.32 34,722.22
Statement of Annual Return
Cash received on sale of units 34,722.22 x 44 1527778
Cost of Investment 10,00,000
5,27,778
Rate of return = 5,27,778
10,00,000 x 100 x
1
5 = 10.56 % p.a
b. Following financial informations are available of XP Limited for the year 2018
Equity share capital (Rs10 each) Rs 200 lakh
Reserve and surplus Rs 600 lakh
10% debentures (Rs 100 Each) Rs 350 lakh
Total Assets Rs 1200 lakh
Asset turnover ratio 2 times
Tax rate 30%
Operating margin 10 %
Dividend pay-out ratio 20%
Current market price per equity share Rs 28
Required rate of return of investors 18%
You are required to
i. prepare income statement for the year 2018
ii. determine its sustainable growth rate
iii. determine the fair price of companies share using dividend discount
model
iv. give your opinion on investment in the companies share at current
price
Author’s note: Simple repetitive question of corporate valuation. Q5 , Pg 9.3
Answer:
i Statement of Income
Total Assets 1200 lakh
Asset Turnover Ratio 2 times
Sales 1200 x 2 2400 lakh
EBIT 2400 x 0.1 240 lakh
Interest 10% x 350 35 lakh
EBT 205 Lakh
Tax 30% 61.5
EAT 143.5
Shares 20 lakh
EPS 7.175
DP ratio 20%
DPS 1.435
CA PRAVIIN MAHAJAN SFM CLASSES 1/30, Lalita Park, Laxmi Nagar, near laxmi nagar 9354 720 515 Gurudwara, Opposite Metro Pillar 24, NewDelhi
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ii. Growth rate = b.r
= 0.8 x 143.5
800
= 14.35 %
iii P0 = 𝑑1
𝑘𝐸 − g
= 1.435 (1.1435)
0.18 − 0.1435
= Rs 44.96
iv Since MP < Intrinsic value so share should be purchased
c. Explain briefly the sources for funding a Start-up
Q5a Rice trader has planned to sell 22000 kg of rice after 3 months from now. The spot
price of the rice is Rs 60 per kg and 3 months future on the same is trading at Rs 59
per kg. Size of the contract is 1000 kg. The price is expected to fall as low as Rs 56
per kg, 3 months hence. What the trader can do to mitigate its risk of reduced profit?
If it decides to make use of future market, what would be the effective realised price
for its sale when after 3 months spot price is Rs 57 per kg and future contract price
for 3 months is Rs 58 per kg ?
Author’s Note : Simple question of Derivative. Q49, Pg 2.12 of book
Answer:
i. To Mitigate the risk of reduced profit, trader can sell wheat future
today @ Rs 59/Kg and buy wheat future after 3 months @
reduced price
ii. Statement of Realised price of wheat
Sale of 22,000 Kg of wheat at spot rate
after 3 months 22,000 x 57 12,54,000
Future
22,000 kg wheat future sold @ 59 12,98,000
@22,000 Kg wheat future bought
22,000 x 58 12,76,000 22,000
Realised Price of Wheat 12,76,000
i.e Rs 58/ Kg
22 wheat future contract sold.
CA PRAVIIN MAHAJAN SFM CLASSES 1/30, Lalita Park, Laxmi Nagar, near laxmi nagar 9354 720 515 Gurudwara, Opposite Metro Pillar 24, NewDelhi
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b. On 1st January 2019 Global Limited an exporter entered into a forward contract with
BBC Bank to sell US $ 2,00,000 on 31st March 2019 at rupees 71.50 /$. However
due to the request of the importer, Global Limited received the amount on 28
February 2019. Global Limited requested the bank to take delivery of the remittance
on 2nd March 2019. The inter banking rates on 28th February 2019 were as follows:
Spot rate Rs 71.20 / 71.25
one month premium 5/10
If Bank agrees to take early delivery then what will be the net inflow to global Limited
assuming that the prevailing Prime lending rate is 15%. Assume 365 days in a year.
Author’s Note : Simple question of Early delivery
Answer:
On 1st Jan, Indian company entered into 3 months forward contract to sell 2,00,000 $,
@ Rs 71.90 due on 31st March. Company requested to bank to receive $ on 2nd
march.
Swap Loss
Bank will sell 2,00,000 $ to wholesale bank @ Rs 71.20 Rs 142,40,000
Bank will Buy 2,00,000 $ from whole sale bank
@ 1 month forward rate of 71.25 + 0.10 Rs 142,70,000
Swap Loss 30,000
Interest on cash outflow
Bank bought 2,00,000 $ from Co. on 2nd march @ 71.5 143,00,000
Bank sold 2,00,000 $ to whole sale bank on 2nd march
@ 71.20 142,40,000
Cash outflow 60,000
Interest on outflow of funds
60,000 x 0.15 x 29
365 49.31
Statement of Net Inflow to Global Ltd
Cash received on sale of 2,00,000 @ 71.5 Rs 143,00,000
Swap Loss Rs 30,000
Interest on outflow Rs 49.31
142,69,950.69
c. State the benefits of listing to a small and medium Enterprise
Q6a Sun limited an Indian company will need $ 5,00,000 in 90 days. In this
connection following information is given below:
$ 1 - Rs 71
90 days forward rate of $1 as of today = Rs 73
Interest rates are as follows:
Particulars US India
90 days deposit rate 2.50% 4.00 %
90 days borrowing rate 4.00 % 6.00%
A call option on $ that expires in 90 days has an exercise price of Rs 74 and a
premium of Rs 0.10. Sun limited has forecasted the spot rates for 90 days as
below:
CA PRAVIIN MAHAJAN SFM CLASSES 1/30, Lalita Park, Laxmi Nagar, near laxmi nagar 9354 720 515 Gurudwara, Opposite Metro Pillar 24, NewDelhi
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future rate probability
Rs 72.50 25%
Rs 73 50 50%
Rs 74.50 25%
Which of the following strategies would be the most preferable to Sun Limited:
i. A forward contract
ii. A money market Hedge
iii. an option contract
iv. No hedging
Show your calculations in each case.
Author’s Note : Simple repetitive question of forex covered in manual and in
class.
Answer: Indian company needs $ 5,00,000 in 90 days. Since quote is 𝑅𝑒
$, so
relevant rate is ASK rate.
Company has 4 options.
I hedge through forward market.
Company will book a forward contract today to buy 5,00,000 $ after 3
months @ 90 day forward rate of Rs 73/$. Company will pay
5,00,000 x 73 = Rs 365,00,000
ii. Hedge through Money Market
F𝐴
𝐵 = S
𝐴
𝐵 x
1 + 𝑟𝐴
1 + 𝑟𝐵
= 71 x 1 + 0.06 𝑋
90
360
1 + 0.025 𝑋 90
360
= 71 x 1.015
1.00625
= 71.62
Indian company will pay 5,00,000 x 71.617391 = 35808695.5 Rs
5,00,000 x 71 x 1.015
1.00625
Steps in Money market hedge (Re borrow,$ deposit)
1. Company will deposit present value of 5,00,000 $ for 90 days @ 2.5%
pa. Co will deposit 5,00,000
1.00625 = $ 496894. 41
2. Company will convert $ 496894.41 in Rs @ spot rate of Rs 71/$
496894.41 x 71 = Rs 35279503
3. Company will borrow Rs 352,79,503 for 90 days @ 6% p.a
Co will pay 352,79,503 x 1.015
= 358,08695
CA PRAVIIN MAHAJAN SFM CLASSES 1/30, Lalita Park, Laxmi Nagar, near laxmi nagar 9354 720 515 Gurudwara, Opposite Metro Pillar 24, NewDelhi
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iii. Hedge through currency options
call gives right to buy $. Since company has to buy $,company will buy
call option.
Statement of payment
Premium paid 5,00,000 x 0.10 Rs 50,000
Interest on premium 50,000 x 0.06 x 90
360 Rs 750
Due date
MP EP applicable payable prob paid
72.5 74 72.5 362,50,000 0.25 9062500
73 74 73 365,00,000 0.5 18250000
74.5 74 74 370,00,000 0.25 92,50,000 36562500
366,13,250
Iv No hedging
Company will buy 5,00,000 $ after 90 days @ spot rate after 90 days
Company will pay 5,00,000 ( 72.5 x 0.25 + 73 x 0.5 + 74.5 x 0.25)
= 5,00,000 x 73.25
= 366,25,000
Since payment is least in hedge through money market, so money market
hedge is better.
b. K currently operates from 4 different buildings and wants to consolidate its operations into one building which is expected to cost Rs 90 crores. The board of K Ltd. had approved the above plan and to fund the above cost, agreed to avail an external commercial borrowings (ECB) of GBP 10 m from G Bank Limited on the following conditions:
The loan will be availed on 1st April 2019 with interest payable half yearly rest
Average loan maturity life will be 3.4 years with an overall tenure of 5 years
Upfront fee of 1.20 %
interest cost is GBP 6 months Libor + margin of 2.50%
The 6- month LIBOR is expected to be 1.0 5%
K Limited also entered into a GBP - INR Hedge at 1 GBP = I NR 90 to cover the exposure on account of the above ECB loan and the cost of the hedge is coming to 4.00 % per annum As a finance manager, given the above information and taking 1 GBP= INR 90; i. Calculate the overall cost both in percentage and rupee terms on annual
basis ii. What is the cost of hedging in rupee terms ? iii. If K limited wants to pursue an aggressive approach what would be the
net gain/ loss for K Limited if the INR depreciates / appreciates against GBP by 10% at the end of 5 years assuming that loan is repaid in GBP at the end of 5 years
Ignore time value and Taxes and calculate to 2 decimal.
CA PRAVIIN MAHAJAN SFM CLASSES 1/30, Lalita Park, Laxmi Nagar, near laxmi nagar 9354 720 515 Gurudwara, Opposite Metro Pillar 24, NewDelhi
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Author’s Note: A new Question on External commercial borrowings Answer:
i. Loan required in Rs 90 Cr Loan required in GBP 10Mil Up Front fee 1.20% i.e 1,20,000 GBP i.e 1,20,000 x 90 = 108,00,000 Rs Amortisation of fee p.a 108,00,000/5 = 21,60,000 Interest rate 1.05 + 2.5 % i.e 3.55% Interest cost p.a 0.355 x 90 cr = 3.195 cr Anuual Cost in Rs 3.195 + .216 = 3.411 cr
Annual cost in % 3.411
90 x 100 = 3.79% p.a
ii. Cost of Hedging 4% p.a i.e 4% of 90 cr = 3.6 cr
iii. If K ltd take aggressive approach, ie no hedging, K ill repay 10mil GBP
loan @ spot rate after 5 years. If Re Depreciates 10% after 5 years, Spot rate after 5 years will be
90
.90 = Rs 100 / GBP
Company will pay 100,00,000 x 100 = 100,00,00,000 = Rs 100 cr Loss to Co. Rs 10 cr If Re appreciates 10% after 5 years, Spot rate after 5 years will be
90
1.1 = Rs 81.82 / GBP
Co will pay 100,00,000 x 81.82 = 81,82,00,000 Gain to company is Rs 8,18,00,000
c. Discuss briefly the important constituents of International Financial Centre IFC OR
What are the differences between Islamic finance and conventional Finance
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