F-18(MFS) Revised Syllabus |
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Time Allowed : 3 Hours | Full Marks : 100 | ||
The figures in the margin on the right side indicate full marks. | |||
Answer Question No. 1 which is compulsory and any five from the rest. | |||
Please answer all bits of a question at one place. | |||
Marks |
1. | (a) | In the cases below, one of the answers is correct. Choose the correct answer and give your workings /reasons briefly: |
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(b) | From the following, choose the most appropriate answer (only indicate A, B, C, D, as you think correct) | 10x1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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2. | (a) | Ray gold Ltd . (RL) has a paid-up ordinary share capital of Rs.200 lakhs represented by 4 lakhs shares of Rs.50 each. Earnings after tax in the most recent year (2004-2005) were Rs.80,00,000 of which Rs.26,50,000 was distributed as dividend. The current price/earning ratio of these shares as reported in the financial press is 8. |
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( 2 )
F-18(MFS) Revised syllabus |
Marks |
The company (RL) is planning a major investment that will cost Rs.240 lakhs and is expected to produce additional after-tax earnings over the foreseeable future at a rate of 15 percent on the amount invested. The necessary finance is to be raised by a rights issue to the existing shareholders at a price 25 percent below the current market price of the company’s shares.
You are required to calculate: |
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2+1+1 2+2 | ||||||||||||
(b) | B. K. Construction Ltd. (BKCL) commenced construction of a cement factory in Jhargram on 1.04.2003 for Royal Industries Ltd., one of its customers. The contract price was fixed at Rs.150 lakh and the initial estimate of total construction cost was Rs.128 lakh. At the end 2003-04, the initial estimate of cost was revised to Rs.129 lakh. | ||||||||||||
Royal Industries Lts. Approved a variation in 2004-05 and agreed to increase the contract price to Rs.156 lakh. The contractor (BKCL) estimated additional cost of Rs.3 lakh for the variation. The contractor (BKCL) determines the stage of completion of the contract by calculating the proportion that contract costs incurred for work performed up to the reporting date bear to the latest estimated total contract costs.
It took three years to complete the construction. Costs incurred are as follows: |
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You are required to work out:
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2+2 +1+3 | ||||||||||||
3. | All of the 100 accountants employed by Molson Ltd, are offered the opportunity to attend six training courses per year. Each course lasts for several days and require the delegates to travel to a specially selected hotel for the training.
The current costs incurred for each courses are: |
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It is expected that the current delegate costs will increase by 5% per annum.
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It is expected that the current costs will increase by 2.5 percent per annum.
The Director (HRD) of Molson Ltd is concerned at the level of costs that these course incur and has recently read an article about the use of the internet for the delivery of training courses (e-learning). He decided to hire an external consultant at a cost of Rs.5000 to advise the company on how to implement an e –learning solution. The consultant prepared a report which detailed the cost of implementing and running an e-learning solution: |
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Notes: | |||||||||||||
(1) | The Computer Hardware will be depreciated on a straight line basis over 5 years. The scrap value at the end of five years is expected to be Rs.50,000. | ||||||||||||
(2) | The company would sign a software license agreement which fixes the annual software license fee for 5 years. This fee is payable in advance. | ||||||||||||
(3) | An employee working in the I.T. Department currently earning Rs.20,000 per annum will be promoted to Manager (Technical) for this project. This employee’s position will be replaced. The salary of the Technical Manager is expected to increase by 6 percent per annum. | ||||||||||||
(4) | The Company supplying the camera and Sound crew for recording the courses for internet delivery has agreed to hold its current level of pricing for the first 2 years but will increase costs by 6 percent per annum. All courses will be recorded in the first quarter of the year of delivery. | ||||||||||||
(5) | The trainers will charge a fixed fee of Rs.2,000 per course for the delivery and course material in the year and expect to increase this by 6 percent per annum thereafter. The preparation of the course material and the recording if the trainers delivering the courses will take place in the first quarter of the year of delivery. | ||||||||||||
(6) | All of the accountants, utilizing the training courses will be offered Rs.300 towards broadband costs which will allow them to acess the course from home. They will claim this expense annually in arrears. Broadband costs are expected to decrease by 5 percent per annum after the first year as it becomes more widely used by Internet users.
Molson Ltd uses a 14 percent cost of capital to appraise projects of this nature, ignore taxation. Requirement: As the Management Accountant for MOLSON LTD, prepare a financial evaluation of the options available to the company and advise the Director on the best course of action to take, from a purely financial point of view. Note: extract from the table: The present value factor at 14% Discount rate are: |
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( 3 )
F-18(MFS) Revised syllabus |
Marks |
4. | (a) | Coomer Ltd has at the beginning of a period 1,00,000 Equity shares of Rs.10 each and 12% long-term debt of Rs.8,00,000. the financial department of the company has generated the following forecast financial statistics for the period: | 4+2+4 | |||||||||||||||
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The Assets, Liabilities and Equity figures used to compute the above financial statistics are based on forecast period – end balances. The company has no plan to change its equity share capital and long - term debt.
You are required to: |
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(b) | Throughout the year ended 31st March, 2005 C.L.C Ltd had in issue Rs.4,00,000 8% convertible debentures. The terms of conversion for every Rs.1,000 of debentures are as follows: | 3+3 | ||||||||||||||||
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Profits attributable to equity shareholders for the year amounted to Rs.5,00,000. the weighted average number of equity shares in issue during the year was 2,00,000. the tax rate is 40%.
Calculate: (1) Fully diluted earnings; and (2) Full diluted earnings per share |
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5. | (a) | What are the most common option trading strategies? Give a brief description of each strategy. | 5 | |||||||||||||||
(b) | Quickset Company’s equity shares are currently selling at a price of Rs.400 each. An investor is interested in purchasing Quickset’s shares. The investor expects that there is a 70% chance that the price will go up to Rs.5.50 or a 30% chance that it will go down to Rs.3.50, three months from now. There is a call option on the shares of Quickset that can be exercised only at the end of three months at an exercise price of Rs.450. | |||||||||||||||||
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3+3+ 3+2 | |||||||||||||||||
6. | (a) | What are the arguments for and those against for inclusion of Intangible assets in financial statements? | 4+2 | |||||||||||||||
(b) | As a financial analyst of Wilson Electronics Ltd (WLL) you are requested to determine the Weighted Average Cost of Capital (WACC) of the company using Market Value Weights. The following information is available for your perusal.
The company’s present book value Capital Structure is: |
2+3+5 | ||||||||||||||||
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Additionally the following information are available:
Company’s Equity beta - 1.06 Yield on Long-term treasury bonds – 10% Stock market risk premium -6% The debentures are redeemable after 3 years and interest is payable annauly. Corporate tax rate -35%. Note: ignore floatation costs and transaction costs. |
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7. | (a) | The Accounts of Sitraze Ltd (SL) engaged in manufacturing business are summarized below: | 5+2+3 | |||||||||||||||
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Additional information:
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Note:For EVA computation R & D expenses are to be considered as an investment.
Requirements:
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(b) | The following information are available from a Merchant Bank: | 2+4 | ||||||||||||||||
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The market return and the market standard deviation are 14.50 percent and 5 percent respectively and the risk-free rate is 6 percent.
Required: Estimate the “ALPHA” Value of each of these company’s shares. |
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8. | Write short notes on the following:
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4x4=16 | ||||||||||||||||
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