In each of the cases given below, one out of four answers is correct. Indicate the correct answer and give workings/reasons briefly in support of your answer :
Q1: The capital of PQR Limited is as follows :
90% preference shares of Rs.10 each Rs.3,00,000
Equity shares of Rs.10 each Rs.8,00,000
Following further information is available :
Profit after Tax Rs.2,70,000
Equity Dividend paid 20%
The market price of equity shares Rs.40 each
Then the EPS and PE ratio are :
(A) Rs.3.12 and 10.80
(B) Rs.3.33 and 10.34
(C) Rs.4.51 and 12.56
(D) Rs.3.04 and 13.16 [Ans]
Q2: A project has an equity beta of 1.2 and is going to be financed by 30% debt and 70% equity. Assume debt beta = 0, Rf = 10% and Rm = 18%. What is the required rate of return?
- A) 8.4%
(C) 16.72% [Ans]
Q3: A Limited is presently selling 1,00,000 units of its products. The selling price per unit is Rs.25 and variable cost per unit is Rs.15. The fixed cost is Rs.5,00,000. The financial breakeven point for the company is Rs.1,50,000. What will be the percentage change in EBIT required to increase EPS by 20%?
(C) 14% [Ans]
Q4: Zoom Technologies Limited issued 1,00,000, 14% debentures of Rs.100 each, redeemable after 5 years at Rs.110 each. The commission payable to under writers and brokers is 10%. The after-tax cost of debt, assuming a tax rate of 45%, will be
(D) 11.7% [Ans]
Q5: An investor wrote a naked call option. The premium was Rs.2.50 per share and the market price and exercise price of the share are Rs.37 and Rs.41 respectively. The contract being for 100 shares, what is the amount of margin under First Method, that is required to be deposited with the clearing house?
(A) Rs.590 [Ans]
Q6: According to Gordon’s dividend capitalisation model, if the share price of a firm is Rs.43, its dividend pay-out ratio is 60%, cost of equity is 9%, ROI is 12% and the number of shares are 12,000, what will be the net profit of the firm?
(C) Rs.36,120 [Ans]
Q7: You are a forex dealer in India. Rates of rupee and Euro in the international market are US $ 0.01962905 and US $ 1.335603 respectively. What will be your direct quote of (euro) to your customer?
(B) Rs.68.0420 [Ans]
Q8: The interest rate in the United States is 5%, in Japan, the comparable rate is 1.5%. The spot rate for the yen is $ 0.012067821. If the interest rate parity holds, what is the 90-day forward rate on the Japanese yen?
(A) $ 0.01248 [Ans]
(B) $ 0.01359
(C) $ 0.01350
(D) $ 0.01200
Q9: An investor buys a call option contract for a premium of Rs.200. The exercise price is Rs.20 and the current market price of the share is Rs.17. If the share price after three months reaches Rs.25, what is the profit made by the option holder on exercising the option? Contract is for 100 shares. Ignore the transaction charges.
(C) Rs.300 [Ans]
State if each of the following sentences is T (= true) or F (= false) :
Q1: The amount of cheques issued by a company not yet paid out is referred to as net float.
Q2: Annual capital charge method is used for evaluating projects having different life spans.
Q3: According to Modigliani and Miller Theory on dividends, dividend pay-out ratio is irrelevant for all firms.
Q4: Simulation is done for capturing the different possible outcomes and determining the probability of a particular event happening.
Q5: A call option is the right to sell, whereas a put option is a right to buy.
Q6: An acquisition of a business by using equity fund and a small amount of debt is known as leveraged buy out.
Q7: Global Depository Receipts are issued to investors in India, who want to subscribe to shares of foreign companies.