Fundamentals Of Corporate Finance Question Paper 2080

Candidates are required to give their answer in their own words as far as practicable.
The figures in the margine indicate full marks.

Group "A"

Brief Answer Questions: Attempt ALL questions

[10×2=20]

Write the meaning of business ethics.

How does operating lease differ from financial lease?

What do you mean by optimal capital structure?

What is operating plan?

Why preferred stock is called hybrid security?

List out any four reasons for going global.

Define the term warrant.

What do you mean by purchasing power parity?

Star Traders buys under terms of 3/8 net 50. Star Trader does not take discount and pays on 60th day. What is the annual percentage cost stretching accounts payable? Assume 360 days in a year.

10.

Sahara Company has 320,000 shares outstanding and the firm's charter provides for a cumulative voting procedure. The company has seven directors. What is the minimum number of shares needed to ensure the election of one director?

Group "B"

Descriptive Answer Questions: Attempt any FIVE questions.

[5×10=50]

11.

Explain the potential conflict of interest between shareholders and managers, and between shareholders and creditors. How these conflicts can be resolved?

12.

Describe the methods of issuing securities.

13.

Mega Company can lease equipment for three years, making annual payments of Rs. 150,000 per year at the end of each year or they can buy the equipment for Rs. 300,000. At the end of third years, the equipment will have no salvage value. The firm's before tax cost of debt is 10 percent. The company uses straight-line depreciation and has a 40 percent tax rate..

a. Calculate cost of leasing.
b. Calculate cost of purchasing. Should the machine be leased or purchased?
c. The appropriate discount rate for cash flows used in the analysis is the firm's after-tax cost of debt, why?

14.

Alpha Paint Corporation has a convertible subordinated bond with a coupon rate of 10 percent. It has a face value of Rs. 1,000 and matures in 10 years. The common stock is currently selling at Rs. 200 per share. The conversion ratio is 4 and the interest rate on similar risk bond is 12 percent.

a. What is the conversion price?
b. Calculate initial conversion value
c. Compute initial conversion premium.
d. What are the reasons for using convertible securities?

15.

Janakpur Textile Company's balance sheet is given below:

Balance Sheet as of December 31, 2023
Cash	Rs. 200,000	Accounts payable	Rs. 200,000
Account receivable	350,000	Accruals	100,000
Inventory	450,000	Notes payable	300,000
Total current assets	Rs. 1,000,000	Total current liabilities	Rs. 600,000
Net fixed assets	2,000,000	Common stock	1,500,000
		Retained earnings	900,000
Total assets	Rs. 3,000,000	Total liabilities and equity	Rs. 3,000,000

Sales are expected to increase from Rs. 10,000,000 in 2023 to Rs.15,000,000 in 2024. Firm's after-tax profit margin is forecasted to be 10 percent and its dividend payout ratio will be 70 percent. .

a. What is the firm's additional fund needed for the year 2024 if company is running at full capacity? Use AFN equation.
b. Prepare Janakpur Textile Company's pro-forma balance sheet of as of December 31, 2024

16.

Kapil set out to tour Singapore in January 2024. He had set aside NR 300,000 for his tour. On January 16, 2024, he went to Baluwatar and exchanged NR 300,000 for SGD. On that very day, Nepal Rastra Bank's Bid rate for one unit of SGD was NR 69.13 and its Ask rate was NR 69.61 for one unit of SGD. Unluckily he had to cancel his trip to Singapore on January 22 for next couple of months. So, he again exchanged SGD for NR at the same rate quoted on January 16.

a. How much SGD did he receive after exchanging NR 300,000 on January 16.
b. How much NR did he receive on January 22 after selling the SGD?
c. What is his gain or loss in buying and selling of SGD?
d. What percent did he gain or lose his money?
e. What is the Bid/Ask percentage spread?

Group "C"

Analytical Answer Questions: Attempt any TWO questions.

[2×15=30]

17.

Explain different types of mergers. Also discuss the rationales behind the mergers and acquisitions.

18.

The Himalayan Herbal Company has planned to raise long-term fund. Recently it has announced a rights offer to raise Rs 80 million for a new plant. The stock has Rs 100 par value and currently sells for Rs 250 per share, and there are 1.6 million shares outstanding

a. What is the maximum possible subscription price? What is the minimum?
b. If the subscription price is set at Rs 100 per share, how many shares must be sold?
c. How many rights will it take to buy one share?
d. What is the value of a right?
e. What is the ex-rights price?
f. Show how a shareholder with 2,000 shares before the offering and no desire (or money) to buy additional shares is not harmed by the rights offer

19.

Modern Printing Press estimates that it will need an additional Rs 500,000 for the month of June due to the seasonal nature of its business. It has three options available to provide the needed funds:

a. Establish a one-year line of credit for Rs 500,000 with a commercial bank. The commitment fee would be 1 percent, and the interest charged would be 12 percent per annum on the used funds. No minimum time on the use of the money.
b. Forego the June trade discount of 2/10, net 40 on Rs 500,000 of accounts payable.
c. Issue Rs 500,000 of sixty-day commercial paper at a 9 percent per annum interest rate. Since the funds are only required for only 30 days, the excess funds are invested in 6 percent per annum marketable securities for the month of July. The total transaction fee on purchasing and selling the marketable securities is 0.5 percent of the fair market value

i. Calculate rupees cost of each alternative. Which alternatives result in the lowest rupees cost?
ii. Is the source with the lowest expected cost necessarily the source to select? Why or why not?