NMIMS PGDFM JUNE FILES

Capital Market and Portfolio Management

1. Calculate the standard deviation and return of portfolio consisting of 60% of Security A

and 40% of Security B.

Year Security A return% Security B return%

2015 10 18

2016 12 15

2017 9 11

2018 10 9

2019 5 7

10 Marks

2. Calculate the return as per CAPM for each of the company&rsquos stock, identify whether they

are underpriced, overpriced or correctly priced and advise accordingly. Returns of T- Bill

is 9%.

Stock Expected Return Beta

Titan 24% 1.8

Nestle 30% 1.5

Eicher Motors 12% 1.2

HDFC 25.9% 1.3

Sensex 22%

10 Marks

3. An investor was tracking SBI and HDFC mutual funds whose return and beta are as given below:

Observed

Return

Beta

Portfolio SBI 18% 0.75

Portfolio HDFC 25% 1.25

Return on the market portfolio is 11%, while the risk-free return is 8%. Assume standard

Deviation of the market to be 7%.

a. Compute the Jensen index for each of the funds and comment which one is better.

5 Marks

b. Compute the Treynor index for each of the funds and comment which one is better

Strategic Financial Management

1. From the following information of the two projects calculate the net present value and

suggest which of the two projects should be accepted assuming a discount rate of 10%.

TABLE GIVEN BELOW

Project X Project Y Initial Investment 25,000 30,000 Estimated Life 5 years 5 years Scrap Value 1,500 2,000

The profits before depreciation and after taxes are as follows:

Years 1 2 3 4 5 Project X 5,000 10,000 12,000 7,000 3,000 Project Y 20,000 10,000 7,000 5,000 2,000

2. Nisha has completed her MBA and has joined a company which was going to raise fund from long term sources such as Debt and Equity. Nisha was asked by her manager to prepare a report on which could be a better source of funding for the firm mentioning the advantages of each to be presented to the Management so that it is easy for them to take the decision. Help her to prepare the report. 10 Marks

3. The following information is given for Delta Ltd.

Earnings per share

15

Dividend per share

5

Cost of Capital

15%

Internal Rate of Return On Investment

20%

Retention Ratio

65%

Calculate the market price per share using

a. Gordon&rsquos Dividend Model 5 Marks

b. Walter&rsquos Dividend Model

Strategic Cost Management

1. A company has a contribution/sales ratio of 50%. It maintains a MOS of 25%. If its annual

fixed cost is Rs. 50 lakhs, calculate:

BE sales, MOS, Total Sales, Total Cost and Profit

2. The following information is available from the records of Alpha Ltd. For the year 2019:

You are required to prepare a master budget.

Rs.

Sales of product A 25.0 Lakhs

Sales of product B 75.0 Lakhs

Material cost 55% of sales

Direct wages 50,000 per month per worker

Factory Overheads:

Indirect Labor:

Works Manager 1 0,000.0 per month

Foreman 5 ,000.0 per month

Stores and spares 5.0% of sales

Depreciation of machinery 1 50,000.0

Light and power 1 00,000.0

Repairs and maintenance 1 50,000.0

Other expenses 15% of direct wages

Administration expenses 2 00,000.0 per annum

10 Marks

3. You are a consultant hired to advise ABC Limited on ROI and help with decision making

for additional order. The company has provided you following information:

Particulars Amount Rs.

Sales 2,00,000 units at Rs. 20 4,000,000

Less: costs @ Rs. 15 per unit 3,000,000

Contribution Margin 1,000,000

Less: Fixed costs 750,000

Division Profit 250,000

The amount of division investment is Rs. 15,00,000 and the target rate of return on

investment is 20%

a. Based on the information provided calculate ROI and Residual income of ABC Limited

5 Marks

b. Assume that division has offer to sell 50,000 units at Rs. 25 per unit. If additional order

is accepted, the cost per unit will remain the same. However, fixed costs would

increase by Rs. 250,000. A further additional investment of Rs. 10,00,000 would also be

required. Analyze the impact on residual income.