ASSIGNMENT

MF0001
(2 Credits)

SET 1

Marks 30

Security Analysis and Portfolio Management

1a. What is a Portfolio? Explain the portfolio investment process. (5 Marks)

b. Financial Markets are absolutely vital for the proper functioning of the economy.

Explain the statement. (5 Marks)

2a. Explain the features of Capital Market. (5 Marks)

b. Money market provides the investors a place for parking surplus funds for short
period of time. Elaborate.
(5 Marks)

3a. Explain important money market instruments. (5 Marks)

b. Explain the features and functioning of OTCEI (5 Marks)

4a Technical analysis is based on the assumption that markets are driven more by
psychological factors than fundamental values. Substantiate. (5 Marks)

b. What are technical indicators and how it is useful to a technical analyst? (5 Marks)

5a. Explain Random Walk Theory. (5 Marks)

b. Explain event study and bring out its relationship with efficient market hypothesis.
( 5 Marks)

CASE STUDY (10 MARKS)

6. Akash is an Investment consultant with rich experience in equity research and

portfolio management. He was requested by a client to give a presentation on equity
valuation. You as an executive assistant prepare for him the following:
a. Brief explanation of different types of Equity Valuation Models.

b. How is Dividend Discount and Constant Growth Model valued?

c. Calculation of required rate of return on the client firm’s stock. Assume that the risk
free rate is 7% and the market premium is 6% and stock’s beta is 1.2

d. Assume that the firm is a constant growth company which paid a dividend of Rs5.00
last year and the dividend is expected to grow at the rate of 10% forever. What is the
expected value of the stock a year from now?

e. If the stock is currently selling for Rs110.00, what is the expected rate of return on
the stock?

ASSIGNMENT
MF0002
(2 Credits)
SET 1
MARKS 30
Mergers & Acquisitions

1. Explain the types of merger with suitable examples. (5 Marks)

2. Mergers and Acquisitions is regarded is a dynamic response to political, sociological &
technological changes. In this context, explain the stages of M & A process.
(5 Marks)

3. Write short notes on: (10 Marks)

a. Spin off
b. Equity carve outs
c. LBOs
d. Concentric mergers
e. MLPs

Case Study (10 Marks)

4. Balance sheet of XYZ Limited as in March 31 (Current year) is a follow:

Liabilities Amount Assets Amount

 Equity share capital 10 lakh Plant and machinery Rs. 250
Shares @ Rs. 20 each Rs. 200 Furniture and fittings 5
13% Debentures 100 Inventories 90
Retained earnings 50 Debtors 25
Creditors and other current liabilities 30 Bank balance 10
380 380

(i) The company is to be absorbed by ABC limited on the above date. The consideration
for absorption is the discharge of debentures at a premium of 10 per cent, taking
over the liability in respect of sundry creditors and other current liabilities and
payment of Rs.14 in cash and one share of Rs. 10 in ABC Limited, at the market
value of Rs. 16 per share, in exchange for one share in XYZ Limited. The cost of
dissolution of Rs. 10 lakh is to be met by the purchasing company

(ii) Expected incremental yearly free cash flows (FCFF) from acquisition for 5 years are
as follows:

(Rs lakh)

Year-end 1 Rs. 100

2 135
3 175
4 200
5 80

(iii) The FCFF of XYZ Limited is expected to be constant after 5 years.

(iv) Cost of capital relevant for XYZ Limited, cash flows is to be 14 per cent.

Based on the above information, comment on the financial soundness of ABC’s

decision regarding merger.

ASSIGNMENT

MBA – III SEMESTER

CODE: MF OOO3

2 CREDITS – 30 MARKS
 TAXATION MANAGEMENT

SET I

NOTE: Answer all questions and each carries 10 marks

1. A) The following items of incomes are received by Mr. Muralidhar for the previous

Year. Find out the taxable income for the relevant assessment year if the assessee is

a) Resident b) Not –Ordinarily resident and c) Non-Resident.

i) Income from business in UK Rs.5 lakh, received there itself except Rs.2 lakh

received in India

ii) Income from dividends of foreign companies received abroad Rs.3 lakh.

iii) Income from business in Bangladesh, business being controlled from India Rs.3 lakh

iv) Income from agriculture in Sri Lanka, 50% received in India Rs.6 lakh

v) Past untaxed Income earned outside India but brought into India during the

previous year.

vi) Income from pension received in India for the past services rendered in

Myamnar, Rs.2 lakh 6 Marks

B) State the meaning of tax evasion and tax avoidance and mention the difference with

Illustrations 4 marks

2 A) Mr. X purchased 10000 equity shares of TT company listed in stock exchanges in India
and abroad and a constituent of BSE500 on 15th March 2005 per share. He sold the shares
at Rs.5000 per share on 31st December 2007. The brokerage and securities transaction tax
deducted were 0.5% and 0.75% respectively. Examine the liability of Mr. X to income tax for
the assessment year 2008-09. Will your answer be different, if instead of selling the shares
in the market. Mr. X privately transferred the shares to his son at the same price? ( Cost
inflation factors: 2004-05 485; 2005-06: 497; 2006-07: 519; 2007-08: 551) (5 marks

B) Srinivas purchased in 1992, 10000 shares of BMC Ltd., for Rs.5 lakh by borrowing

money from a bank. He holds them as investments. He received dividend income on

these shares of Rs.1,00,000 for the previous year 2007-08 on 10th December, 2007. He

has paid interest of Rs. 85,000 on the loan to the bank. Please advise Srinivas, how

should he deal with these facts in computing his income? (5 Marks)

3. A) What are the common features of excise duty and customs duty (5 Marks)

B) State with reason/s whether the following are inter-state sale transactions.

i) Mr. Ram from Bhuvaneswar went to Bombay and had his lunch there.

ii) Bharath came down from Delhi to Mumbai to purchase goods at Mumbai and

took them back to Kolkata branch run by him.

iii) Chitra came to Chennai from Jalandhar and bought goods and asked the dealer

to send the goods through the carrier to Delhi- to a customer.

iv) Eresi came to Calcutta and purchased jute, asked his dealer to send the goods

Delhi, but the dealer sold the goods to Mitra and transported the

goods to Howrah.

v) Taj group of hotel supplies food and drinks to Air India at Mumbai and Air

India serves the good and drinks to the passengers as soon as the flight crosses

Indian Territory. (5 Marks)

ASSIGNMENT

MBA –III SEMESTER

INTERNAL AUDIT AND CONTROL

CODE:MF 0004 – CREDITS 2

MAXIMUM MARKS: 30

SET I

NOTE: Answer all the questions and each question carries 10 marks.

1. Write a detailed note on Analytical procedures as one of the

techniques of collecting evidence in auditing.
 2.Describe the responsibility of the management and auditors for the
frauds and errors committed.

3. Go through the following case and give your analysis of the

situations with respect to Satyam debacle.

Financial statements do not provide enough information on which investments and loans made by a
company are to its subsidiaries and associated firms. In addition, poor quality of consolidated accounting
and segment reporting leads to misrepresentation of the true picture of a business group." On the issue
of the BoD (board of directors), Ms Som bemoans that board members are selected by the promoters on
the basis of existing contacts. "The SEBI code on CG does not help the situation as it abstains from
prescribing nomination committees and chooses a narrow definition of independent directors." Excerpts
from the interview: In situations such as what we see in Satyam, when everyone else is on a sort of
witch-hunt to find who the culprit is, who do you think has to shoulder the first blame, and why? The
Chairman and the MD of the company, the Raju brothers, have already set the ball rolling by owning up to
the default. The chairman in his letter to SEBI has also denied that his family or anybody in the board
was responsible for this default.

From BUSINESS LINE, January 22, 2009 The currently unfolding Satyam episode raises a challenge for
analysts, shareholders and policymakers about how to distinguish ticking the boxes from actual practice,
observes Ms Lalita Som, author of Stock Market Capitalization and Corporate Governance
(www.oup.com).

Ms Som, an independent researcher based in Paris, focuses on areas such as corporate governance in
emerging markets, human capital and social capital. And her book, which dealt specifically with the low-
cap companies (LCCs) accounting for about 80 per cent of our listed companies, suggested that LCCs
because of their low capitalisation escaped the radar of domestic and foreign institutional investors,
banks, and any 'well-managed companies' (for a takeover), resulting in their poor governance, which in
turn leads to their being in the low-cap category for a long time with no opportunities to move up to mid-
cap category. Such companies also do not have access to directors with the right credentials, adds Ms
Som, during the course of a recent email interaction with Business Line.

"Counting on the challenges in promoting internal corporate governance (CG) culture in India, my book
looked into issues of the quality of board directors, disclosure standards and transparency. These issues
have been at play in the Satyam case." In India, the level of disclosure is poor and creative accounting
extensive, Ms Som rues. She finds that the greatest drawback of financial disclosures in India is the
absence of detailed reporting on related party transactions.

"Financial statements do not provide enough information on which investments and loans made by a
company are to its subsidiaries and associated firms. In addition, poor quality of consolidated accounting
and segment reporting leads to misrepresentation of the true picture of a business group." On the issue of
the BoD (board of directors), Ms Som bemoans that board members are selected by the promoters on the
basis of existing contacts. "The SEBI code on CG does not help the situation as it abstains from
prescribing nomination committees and chooses a narrow definition of independent directors." Excerpts
from the interview: In situations such as what we see in Satyam, when everyone else is on a sort of witch-
hunt to find who the culprit is, who do you think has to shoulder the first blame, and why? The Chairman
and the MD of the company, the Raju brothers, have already set the ball rolling by owning up to the
default. The chairman in his letter to SEBI has also denied that his family or anybody in the board was
responsible for this default.
The culpability of the top management becomes severe because by their nature, the directors on the
board largely rely on information from the management and auditors, with their capacity to independently
verify financial information being quite limited, while auditors, as this case suggests, have also been
equally reliant on management information.

The relevant issue here is the extent and the depth of auditors' effort in their exercise of due diligence.
Excessive reliance on information from the management is symptomatic of the ownership or control of
companies in India by business families, and that poses a particular challenge for corporate governance
in India.

If the board is in awe of the family executive, it makes it difficult for the board sometimes to ask tough
questions or at other times the right questions at the right time in order to serve the interests of the
shareholders better. As a result truly independent directors are rarely found in Indian companies.

Lastly, the stock exchanges and the regulatory authority SEBI will be held responsible for the huge losses
incurred by shareholders.

Doesn't corporate law have enough and more safeguards for shareholders, and also offer them ample
opportunities to assert their rights during the normal running of business? Apart from their rights to
participate and vote in company meetings, the Companies Act in India has the following special
safeguards for shareholders: i) Investor Protection Cell - where grievances of investors against
companies can be lodged, electronically since 2005.

ii) MCA 21 - e-filing of documents under company law.

iii) Investor Education and Protection Fund.

iv) There is also a provision through which small shareholders can nominate a small shareholders'
director to the board.

There are other safeguard measures too at the stock exchange level. India has also seen many corporate
governance codes and reports which have all emphasised on the principles of transparency,
accountability and responsibility (to varying degrees).

So in terms of laws, provisions and codes, I do not think that India is short on protecting the interests of
shareholders. But much of this is rendered ineffective if the ethos, ethics and enterprise culture do not
have the interests of shareholders and stakeholders at the heart of the functioning of a company.

One significant implication of this form of enterprise culture and a weak legal system is obliteration of the
rights of minority shareholders and other stakeholders.

Your suggestions on how corporate governance can be strengthened.

Corporate governance is crucial as it not only helps companies boost their share prices but also helps
create a credible and professionally driven business system that can transform living conditions for a
majority of the population. For corporate governance to take root in true sense of the word, it involves
more than the corporate sector and includes wide-ranging issues of the legal enforcement mechanism
and the enterprise culture.

Although laws in India are generally comparable to those in the UK, the court system in India is seen as
inadequate to handle the volume of cases being brought to trial.
Delays in the delivery of verdicts, high costs of litigation and the low quality of judges in the lower courts
make the legal enforcement mechanism ineffective.

An amendment to the Companies Act of 2002 required the establishment of special courts to handle
securities and finance-related crimes. There has been little progress made on this front so far; to improve
the rights of shareholders, this system needs to be established and strengthened.

The last 10 years have seen a series of codes, regulations and laws, encouraging the principles of
greater transparency, accountability, responsibility and participation of independent directors on the
board. However, for these principles to entrench themselves and function effectively at the company level,
it is imperative that there is a change in enterprise culture and behaviour and this usually takes time to
occur.

For example, once the family executives understand the value independent directors bring, the board
dynamics will change accordingly, and independent directors will be able put forward their honest
opinions. The onus is on the chairperson of the board to steer the discussion in such a way that
dissenting opinions also find place.

Another example: A change in the culture would also ensure that employees, if and when in doubt, would
reveal any information they may have been exposed to, or have withheld.

Is the auditing profession ill-equipped to handle the attest needs of large organisations? Also, do we need
a better monitoring of the work of audit firms? In India, the two audit-related issues which are commonly
recognised are that of auditor independence (which is a problem worldwide) because of the large if
segmented market in accounting services, and the perceived powerlessness of auditors in the face of
corporate pressure.

In the face of the current malfeasance, auditors have been quick to point out that they have followed
international standards in conducting their audit. Standards set a floor and not a ceiling and auditors are
certainly free to do a better job than mandated by the Standards.

But conducting thorough audits and exercising professional judgment in emitting the right signals at the
right time have to be balanced against competitive pressures to keep the costs of audit down. These are
some of the constraints and dilemmas facing the auditors.

Having said this, I do not think they are ill-equipped to handle the needs of large companies, because in
the face of an audit failure, it is very difficult to discern whether the auditors were complacent or they were
pressured by the concerted efforts of the insiders.

In the aftermath of the Satyam case, SEBI has decided to introduce a peer review mechanism to review
the accounts prepared by a company's statutory auditor. In addition, SEBI has also decided to constitute
a panel of auditors to review the financial statement of all BSE Sensex and NSE Nifty companies. These
initiatives will add more layers to regulations but the benefits of these may not be significant.

The concept of rotation of auditors was introduced by the Institute of Chartered Accountants of India
(ICAI), which mandates change of auditors after seven consecutive years with a listed company. This will
be operational from April 2009 onwards.

The current case may make the ICAI to rethink the time period allowed before auditors can be changed.
Once malfeasance or negligence is proved on the part of a participating audit firm, sanctions such as
censure and class action suits follow, and I believe these act as significant deterrents than any increase in
regulation.
Since the fraud in this case is said to have been around for many years, will a restatement make the
required amends? Would you suggest a proactive move (internally) by other companies to assess if a
restatement may be necessary in their cases? I think that a restatement for the past seven years would
mean huge costs for a marginal benefit. This case should serve as a signal to other companies that one
can hide information only for so long.

Transparency is a basic tenet of corporate governance, as with appropriate information shareholders can
exercise their rights and it is also a remedy for fraud and manipulation. As one of the judges of the US
Supreme Court Lewis Brandeis succinctly put it - sunlight is the best disinfectant and electricity the best
policeman.

Can corporate governance benefit from an effective framework for whistle-blowing? A person who
chooses to be a whistleblower has to make a very difficult choice, while keeping in consideration loyalty to
the fellow colleagues as well as towards the company. Given the great emphasis we place on these
loyalty issues, to my mind any framework for whistle-blowing will remain ineffectual.

However, if an employee seeks to reveal information on inappropriate acts, any whistleblower framework
should allow for anonymity and access to independent directors on the board. Currently, there is a Bill
called the Whistleblowers (Protection in Pubic Interest Disclosures) which was introduced in the Rajya
Sabha in 2006 and is still pending in Parliament.