Subject Code: IMT-41

Subject Name : INDIAN

Notes:
a. b. c. d. Write answers in your own words as far as possible and refrain from copying from the text books/handouts. Answers of Ist Set (Part-A), IInd Set (Part-B), IIIrd Set (Part C) and Set-IV (Case Study) must be sent together. Mail the answer sheets alongwith the copy of assignments for evaluation & return. Only hand written assignments shall be accepted. 5 Questions, each question carries 1 marks. 5 Questions, each question carries 1 marks. 5 Questions, each question carries 1 marks. Confine your answers to 150 to 200 Words. Two Case Studies : 5 Marks. Each case study carries 2.5 marks.

FINANCIAL SERVICE

A. First Set of Assignments: B. Second Set of Assignments: C. Third Set of Assignments: D. Forth Set of Assignments:

Objective: To develop understanding of management techniques and problems including regulatory aspects of select Financial Service Organisations like NBFCs, Merchant Banking, Factoring Stock Broking, Housing Finance Companies etc. Content Management Issues in Financial Services : An Overview Financial Management of NBFCs Hire Purchase and Leasing Activities Pricing Techniques Capital Adequacy Issue relating to raising of Public Deposit Risk Management Strategies Venture Capital Funds Merchant Banking Activities Structuring Financial instruments including hybrid instruments, Issue Management market making and book building private placement - loan syndication, underwriting, Managing mergers , acquisitions and buy backs Housing Finance Product pricing with fixed and floating rate options re-financing - take over of housing loans granted by other housing finance companies Mortgage backed securitization Credit Card Services Operational issues - pricing issues business model Special purpose vehicle need for permission Operational structure business model functioning of a special purpose vehicle in the context of securitised instruments Factoring activities of factoring companies basic business model of factoring non-recourse factoring and related risk management techniques Stock broking Capital adequacy basic business model Functioning of primary dealers in money market currency dealer, money changer, depository organizations, clearing houses etc. Corporate Governance Issues in Financial Service Sector : An Overview

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Reference: 1. Financial Services, MY Khan, TMH 2. Various notifications of the Reserve Bank of India 3. Syndicated Lending Rhodes Tony, Euro Money, Books London

ASSIGNMENTS
FIRST SET OF ASSIGNMENTS Marks Assignment-I = 5

PART A
1. Examine the role that financial systems play in furthering economic development, with special reference to the Indian context. 2. What functions do financial systems perform? 3. What are the general obligations and responsibilities of merchant bankers? What services do they render? 4. Briefly discuss the various parties involved in the new issues market. 5. Explain the different methods by which shares can be issued in the new issues market. SECOND SET OF ASSIGNMENTS Assignment-II = 5 Marks

PART B
1. Differentiate between mergers, amalgamations and acquisitions. Analyse the managerial motives behind mergers and acquisitions. 2. 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 3. 4. 5. Explain loan syndication. What are derivative instruments? Explain the different financial derivative instruments. Analyse the role played by financial instruments in the money market.

THIRD SET OF ASSIGNMENTS

Assignment-III = 5 Marks

PART C
1. 2. 3. 4. 5. Discuss the regulations that govern the venture capital industry in India. Trace the development of the mutual funds industry in India. Explain the categories into which mutual funds are divided. What are financial leases? Explain the different types of financial leases. TVS Limited takes a truck on lease on 01-01-2000 from Z Leasing Limited. Fair value of the asset Residual value Rs 5, 00,000/Nil - After 5 years

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

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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. FOURTH SET OF ASSIGNMENTS Assignment-IV = 2.5 Each Case Study

CASE STUDY - I
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 1 2 3 Rs 22,50,000 25,00,000 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 1 2 3 Principal (Rs) 5,00,000 8,50,000 8,50,000 Interest (Rs) 3,52,000 2,72,000 1,36,000 Total (Rs) 8,52,000 11,22,000 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 1 2 3 8 per cent 0.926 0.875 0.794 16 per cent 0.862 0.743 0.641

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

Questions a) b) 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? 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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