Examination Paper: Banking and Financial Services Management
5
IIBM Institute of Business Management
IIBM Institute of Business Management
Examination Paper MM.100
Financial Services
1. NBFS stands for …………………………………………………………………………
2. ALCO is a decision making unit responsible for balance sheet planning from risk return
perspective. (T/F)
3. A contract of ‘Indemnity’ is one whereby:
a. A person tries to use the other’s property
b. A person promises to save the other’s property from loss caused.
c. A person tries to trick the property of other for some other person.
d. None of the above
4. The transaction between the lessor and the lessee being a demand sale is called:
a. First sale
b. Second sale
c. Third sale
d. Fourth sale
...
10. HUDCO stands for
………………………………………………………………………………………………………
Part Two:
1. What do you understand by “Lock-in period”.
2. Write a short note “Hybrid Debt Capital Instruments”.
3. What do you understand by “Bipartite Lease”?
4. What is “Suit for Quantum Meruit”?
END OF SECTION A
Section B: Caselets (40 marks)
•?This section consists of Caselets.
•?Answer all the questions.
•?Each Caselet carries 20 marks.
•?Detailed information should form the part of your answer (Word limit 150 to 200 words).
Caselet 1
Sunlight Industries Ltd manages its accounts receivables internally by its sales and credit
department. The cost of sales ledger administration stands at Rs 9 crores annually. It supplies
chemicals to heavy industries. These chemicals are used as raw material for further use of is directly
sold to industrial units for consumption. There is good demand for both the types of uses. For the
direct consumers, the company has a credit policy of 2/10, net 30. Past experience of the company
has been that on average 40 per cent of the customers avail of the discount while the balance of the
receivables are collected on average 75 d...
Question:
1. The CFO of Sunlight Industries seeks your advice as a financial consultant on the alternative
proposals. What advice would you give? Why? Calculations can be up to one digit only.
Caselet 2
Following are the financial statements for A Ltd and T Ltd for the current financial year. Both firms
operate in the same industry.
..
Assume that the two firms are in the process of negotiating a merger through an exchange of equity
shares. You have been asked to assist in establishing equitable exchange terms, and are required to:
(i) Decompose the share prices of both the companies into EPS and P/E components, and also segregate
their EPS figures into return on equity (ROE) and book value of intrinsic value per share (BVPS)
components.
(ii) Estimate future EPS growth rates for each firm.
(iii) Based on expected operating synergies, A Ltd estimates that the intrinsic value of T’s equity share
would be Rs 20 per share on its acquisition. You are required to develop a range of justifiable equity
share exchange ratios that can be offered by A Ltd’s shareholders. Based on your analysis in parts (i)
and (ii), would you expect the negotiated terms to be closer to the upper, or the lower exchange ratio
limits? Why?
(iv) Calculate the post-merger EPS based on an exchange ratio of 0.4 : 1 being offered by A Ltd. Indicate
the immediate EPS accretion or dilution, if any, that will occur for each group of shareholders.
(v) Based on a 0.4 :1 exchange ratio, and assuming that A’s pre-merger P/E ratio will continue after the
merger, estimate the post-merger market price. Show the resulting accretion or dilution in pre-merger
market prices.
1. The Hypothetical Finance Ltd has structured a hire-purchase deal. The required to make a down
payment of 20 per cent of the investment cost. The hire-term is four years with quarterly payment
in advance. The flat rate of interest is 13 per cent. The finance company would charge a frontended
documentation and service fee and allow rebate for prompt payment @ 0.5 per cent and 1
per cent of investment outlay respectively.
Assuming after paying 24th installment, a hirer wishes the purchase option, what is the interest
rebate according to (i) actuarial method, (ii) rule of 78 method and, (iii) SLM?
2. The Hypothetical Finance Ltd (HFL) has structured a hire-purchase deal for the Hypothetical
Industries Ltd (HIL) at a (flat) rate of interest of 13 per cent. The payment would be made in 36
equal monthly installments in arrears. The HIL is required to make a cash down payment of 20
per cent.
Assume that after paying the 24th installment, the HIL wishes to repay the outstanding amount
and purchase the equipment. What is the interest rebate per Rs 1,000 of investment cost,
according to the ERI/IRR method?
5
IIBM Institute of Business Management
IIBM Institute of Business Management
Examination Paper MM.100
Financial Services
1. NBFS stands for …………………………………………………………………………
2. ALCO is a decision making unit responsible for balance sheet planning from risk return
perspective. (T/F)
3. A contract of ‘Indemnity’ is one whereby:
a. A person tries to use the other’s property
b. A person promises to save the other’s property from loss caused.
c. A person tries to trick the property of other for some other person.
d. None of the above
4. The transaction between the lessor and the lessee being a demand sale is called:
a. First sale
b. Second sale
c. Third sale
d. Fourth sale
...
10. HUDCO stands for
………………………………………………………………………………………………………
Part Two:
1. What do you understand by “Lock-in period”.
2. Write a short note “Hybrid Debt Capital Instruments”.
3. What do you understand by “Bipartite Lease”?
4. What is “Suit for Quantum Meruit”?
END OF SECTION A
Section B: Caselets (40 marks)
•?This section consists of Caselets.
•?Answer all the questions.
•?Each Caselet carries 20 marks.
•?Detailed information should form the part of your answer (Word limit 150 to 200 words).
Caselet 1
Sunlight Industries Ltd manages its accounts receivables internally by its sales and credit
department. The cost of sales ledger administration stands at Rs 9 crores annually. It supplies
chemicals to heavy industries. These chemicals are used as raw material for further use of is directly
sold to industrial units for consumption. There is good demand for both the types of uses. For the
direct consumers, the company has a credit policy of 2/10, net 30. Past experience of the company
has been that on average 40 per cent of the customers avail of the discount while the balance of the
receivables are collected on average 75 d...
Question:
1. The CFO of Sunlight Industries seeks your advice as a financial consultant on the alternative
proposals. What advice would you give? Why? Calculations can be up to one digit only.
Caselet 2
Following are the financial statements for A Ltd and T Ltd for the current financial year. Both firms
operate in the same industry.
..
Assume that the two firms are in the process of negotiating a merger through an exchange of equity
shares. You have been asked to assist in establishing equitable exchange terms, and are required to:
(i) Decompose the share prices of both the companies into EPS and P/E components, and also segregate
their EPS figures into return on equity (ROE) and book value of intrinsic value per share (BVPS)
components.
(ii) Estimate future EPS growth rates for each firm.
(iii) Based on expected operating synergies, A Ltd estimates that the intrinsic value of T’s equity share
would be Rs 20 per share on its acquisition. You are required to develop a range of justifiable equity
share exchange ratios that can be offered by A Ltd’s shareholders. Based on your analysis in parts (i)
and (ii), would you expect the negotiated terms to be closer to the upper, or the lower exchange ratio
limits? Why?
(iv) Calculate the post-merger EPS based on an exchange ratio of 0.4 : 1 being offered by A Ltd. Indicate
the immediate EPS accretion or dilution, if any, that will occur for each group of shareholders.
(v) Based on a 0.4 :1 exchange ratio, and assuming that A’s pre-merger P/E ratio will continue after the
merger, estimate the post-merger market price. Show the resulting accretion or dilution in pre-merger
market prices.
1. The Hypothetical Finance Ltd has structured a hire-purchase deal. The required to make a down
payment of 20 per cent of the investment cost. The hire-term is four years with quarterly payment
in advance. The flat rate of interest is 13 per cent. The finance company would charge a frontended
documentation and service fee and allow rebate for prompt payment @ 0.5 per cent and 1
per cent of investment outlay respectively.
Assuming after paying 24th installment, a hirer wishes the purchase option, what is the interest
rebate according to (i) actuarial method, (ii) rule of 78 method and, (iii) SLM?
2. The Hypothetical Finance Ltd (HFL) has structured a hire-purchase deal for the Hypothetical
Industries Ltd (HIL) at a (flat) rate of interest of 13 per cent. The payment would be made in 36
equal monthly installments in arrears. The HIL is required to make a cash down payment of 20
per cent.
Assume that after paying the 24th installment, the HIL wishes to repay the outstanding amount
and purchase the equipment. What is the interest rebate per Rs 1,000 of investment cost,
according to the ERI/IRR method?
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