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Capital Market and
Portfolio Management
Q.1
Following information regarding the holding period of the stock A, is
available. Based on the data provided in the Table 1 below, calculate and
mention the following
i.
Return on Investment (ROI) and its Formulae
ii.
Steps to calculate ROI
iii.
Net Returns from investment (in Rs)
Table
1
|
|
Stock
A
|
|
|
Event
|
Date
|
Value (In Rs.)
|
|
Stock Purchased
|
31 March 2012
|
750.60
|
|
Dividend received
|
31 March 2013
|
9.00
|
|
Dividend received
|
31 March 2014
|
9.50
|
|
Dividend received
|
31 March 2015
|
10.00
|
|
Dividend received
|
31 March 2016
|
10.50
|
|
Dividend received
|
31 March 2017
|
11.00
|
|
Stock Sold
|
31 March 2017
|
1,320.90
|
Q.2
Mr. Ravindra Kumar chooses to invest total amount of Rs. 1,00,000/- in equal
proportion in both Stock A and B (data given in Table 2). The correlation
coefficient between the stock A and stock B is 0.4. Demonstrate that he has
taken a better investment decision as compared to decision of investing all the
amount only in stock A and stock B.
Hint:
You have to demonstrate the impact of diversification on the portfolio returns
and variance in case of two assets
Table
2
|
Stock
A
|
Stock
B
|
||
|
Probability
|
Return
|
Probability
|
Return
|
|
5%
|
-20%
|
10%
|
-25%
|
|
20%
|
0%
|
20%
|
0%
|
|
25%
|
10%
|
25%
|
20%
|
|
30%
|
20%
|
20%
|
30%
|
|
20%
|
25%
|
25%
|
40%
|
Q.3
Mr. Rajendra Kumar has been a investing in the stock market purely based on
tips received from his stock-broker friend, Mr. Ramesh Chandra, and has been
generating decent returns till now. Given the low size of his investible
surplus, he has not been able to take advantage of all the tips that he
received given by Mr. Ramesh, say during a year. As a result his investment has
been restricted to investing mostly in a single company through a particular
year. So much so that sometimes he has stayed invested in a single scrip even
for more than two years. While his returns may have been sometimes good and
sometimes great but he has not been overly worried about their levels or
adequacy, as he has never lost any money at overall investment level. Actually
the yearly returns from his stock market investments have always been higher
than the bank fixed deposit returns, where he parks most of his savings. Hence,
in nutshell, for him the investment strategy seems to be working for him and he
is happy. Thus he never saw any reason to change his investment pattern or
strategy. Moreover he continues to significantly rely on the tips received
through Mr. Ramesh. Because of Mr. Ramesh’s good track record in suggesting
good scrips for investment and the trust Mr. Rajendra has in Ramesh’s
integrity, he has never acted on any of the tip related to investments received
from any other person.
Last
week Mr. Ramesh told him that he plans to retire from his stock broking
business. He planned to handover the business over the next six months, to his
partner and relocate with his wife, permanently to US to stay with his son and
his family. He added that while Mr. Rajendra can continue to avail of the
broking services through the broking firm to be run by his partner, he will not
be able to provide the good and timely tips that Mr. Rajendra has been solely
relying on for investing his money. He also suggested Mr. Rajendra to invest
through mutual funds.
Mr.
Rajendra got worried and told Mr. Ramesh that he is not convinced that why he
should be investing through a mutual fund. Moreover, even if he agrees to
invest through the same, how would he ever choose the one that he should give
his money to invest, as there are so many of them with each one claiming their
performance to be better than the other?
Understanding
Mr. Rajendra’s predicament and anxiety, Mr. Ramesh gave reference of one of his
professional contact (You), working as a fund manager, in a reputed mutual fund
company. He asked Mr. Rajendra to meet you and seek answers to his questions
related to mutual funds. Mr. Rajendra has contacted you and sought time to meet
with you and discuss the following:
a)
Why should Mr. Rajendra be investing through mutual fund?
b)
On what basis he should choose a mutual fund amongst others? What are the various
performance measures used for a mutual fund?
Describe
in detail your answers to Mr. Rajendra’s queries.
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Corporate Finance
Question 1
Lakme
India is planning to launch a new product as “Lakme fair Skin Natural Mousse –
Hydrating”. The company is planning to import machinery costing Rs100 lacs from
Japan. The expected life of the machinery will be 10 years. The selling price
per unit will be Rs 1250 and variable cost per unit will be Rs850. Further the
company will have to pay Rs25lacs as fixed cost per annum. The fixed cost
includes Rs10 lacs as depreciation. The company expects to sale 150000 units of
the produced per year. Tax rate applicable is 50 %. The management of the
company wants to know the cash flow associated with the equipment, as the CEO
of the company emphasis that it is necessary to evaluate capital budgeting
decisions. Do you agree? Give reasons supporting your answer and determine the
cash flow generated (that is profit after tax+ depreciation) by the equipment.
Question 2
If
you want to run your business smoothly, you should be capable enough to manage
the working capital requirements of the business in an efficient manner.
“Several companies like Dabur, Dell computers, Cadbury India realized the need
of maintain an adequate level of working capital. Further they also have to
identify the different types of working capital needed in their business at
different points of time”.
This
is the statement of CEO of M-Mart Ltd who is interviewing you for the position
of finance manager. Do you agree with the statement of the CEO? Give reasons
and conclude the same in an effective manner.
Question 3
Miss
Kavvya is a successful entrepreneur of GEMS Pharma Ltd. The entrepreneur is
looking to launch a new sunscreen cream in the market at a selling price of
Rs275 per unit. The fixed cost determined for producing the product is Rs55700.
The variable cost of producing the product is Rs165 per unit. Miss Kavvya wants
to perform the cost volume profit analysis.
a)
Discuss and explain the relevant tool, formula of CVP analysis applicable in
the above mentioned case and how the cost will be broken down for performing
such analysis.
b)
If the sales are 800 units then what will be the profit generated by the
business? What would be your advice, if the fixed cost is Rs95000 instead of
Rs55700?
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Cost and Management
Accounting
1.
Ashish had joined the labour control and payment system of Navneet Ltd. He was
asked by his manager to prepare a report on the various activities involved in
the cost accounting for the labour. Provide various inputs that he has to keep
in mind while preparing the report.
2.
ABC Ltd uses the LIFO method for recording inventory. The details of the
company are as follows:
|
Jul-14
|
Particulars
|
|
1
|
Opening balance 400
liters @ ₹28.00 per litre
|
|
4
|
Purchased 300 liters @
₹27 per litre
|
|
7
|
Issued 200 litres
|
|
10
|
Issued 300 litres
|
|
22
|
Purchased 490 liters @
₹25.00 per litre
|
|
25
|
Issued 300 litres
|
Prepare
a stores ledger account using the LIFO method and explain the relevance of this
method.
3.
To make 15 Kg. of a product, the standard materials required are as follows:
|
Materials
|
Amount
|
Price
|
|
A
|
10 kg @
|
8
|
|
B
|
3 Kg. @
|
10
|
|
C
|
2 Kg. @
|
12
|
During
the month of July, 1,500 Kg. of the product was produced. The actual materials
consumed were as follows:
|
Materials
|
Amount
|
Price
|
|
A
|
900 kg @
|
7
|
|
B
|
400 Kg. @
|
8
|
|
C
|
200 Kg. @
|
10
|
Calculate
and interpret whether the variance is favourable or unfavourable:
a.
Material Cost Variance
b.
Material Price Variance
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Marketing of Financial
Services
Q
1) Explain the concept of Online Marketing of financial services. How is it
changing the way financial services are sold in India?
Q2)
A study has shown that Insurance agents in India have an incentive to recommend
more expensive and less suitable products to consumers. Suggest a roadmap for
the Insurance industry where there would be a win-win for both agents and the
consumers.
Q
3) You are a Financial Planner. Your client Ashwin Aswani aged 40 years,
married with 1 child requires your help to make some financial decisions. (You
can make any assumptions to further build up your case.)
a)
Ashwin wants to buy a Pure Risk Life Insurance cover. He is confused whether he
should buy a ULIP, Endowment or a Term Plan. Recommend the product best suited
for him giving valid reasons.
b)
Ashwin wants to purchase a holiday home by liquidating his retirement savings
fund and taking a home loan for the next 10 to 15 years. Ashwin wants your
opinion whether this is an appropriate strategy for a Retirement Plan.
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Strategic Cost
Management
1.
XYZ is considering a Project with an initial investment of Rs.100,000. Three
probable cash flow scenarios with their probabilities of occurrence are as
under:
|
Annual Cash Flow (Rs.)
|
20,000
|
30,000
|
40,000
|
|
Probability
|
0.1
|
0.7
|
0.2
|
Project
life is 5 years with expected return of 20%. The expected terminal values
associated with each of above probabilities are Rs.0, Rs.20,000 &
Rs.30,000. Find the probable NPV.
2.
An M&A expert has been hired to explain to the management of a sick company
the symptoms that are normally seen before a company qualifies for being
referred to as a BFIR candidate. You being a freshly appointed Management
Trainee are required to present a small write up, briefly explaining those
early symptoms.
3.
a) From the following particulars, calculate: Material Cost Variance &
Material Price Variance
|
Quantity of materials
purchased
|
3000 units
|
|
Value of materials
purchased
|
Rs.9000
|
|
Standard quantity of
materials required per tonne of output
|
30 units
|
|
Standard rate of
material
|
Rs.2.5 per unit
|
|
Opening stock of
materials
|
nil
|
|
Closing stock of
materials
|
500 units
|
|
Output during the
period
|
80 tonnes
|
3.
b) Calculate Labour Yield Variance from the following data:
|
Standard Output
|
500 units
|
|
Actual Output
|
450 units
|
|
Standard Time
|
1000 hrs
|
|
Standard Rate
|
Rs.20 per hour
|
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Taxation Direct &
Indirect
Question 1
Mr. Chattur, is a citizen of Germany came to India as a tourist in the previous
year 2016-17 and stayed in India for a period of 162 days. He liked the south
east part of the country and decided to explore all the tourist places there so
he stayed in India throughout the year 2015 16. However, in the year 2013-14,
2014-15 he visited India in two International Conferences and his period of
stay was 26 days and 18 days respectively. Discuss in the light of the various
applicable provisions of Income Tax Act-
·
His residential status for AY2017-18 and
the necessity to determine his residential status.
Question 2
Mr. Thakkar aged 38 years furnishes the following details with regard to his
options exercised for tax planning purpose for the year ending as on 31.03.2017
a)
Has taken Life insurance policy as on 30.4.2016 from Bajaj Alliance for a
capital sum assured Rs.2.5 lacs, premium paid for the same Rs75000
b)
Contribution made by a bearer cheque towards Public Provident Fund account of
his father Rs20000
c)
Paid Rs85000 to a friend towards housing loan on a property taken, the property
is situated at Ratlam.
d)
Subscription to units of mutual fund referred under section 10(23D) for
Rs130000.
e)
Contribution made towards Public Provident Fund account of his spouse Rs90000.
He
wants to know about the gross total amount which he can claim as deduction
while computing his total income. Are there any provisions available under the
Indian Income Tax Act for the same? If yes, then discuss how the relevant
provision will be helpful, give adequate reasons supporting the answer and also
calculate the amount eligible for deduction under section 80 C.
Question 3
The Assessing officer in the decided case (GE Energy Parts Inc vs. ADIT, ITAT
Delhi) examined the taxability of income of GE Overseas under the Act as well
as the Double Taxation Avoidance Agreement. He did not accept the contention of
the assessee that the sale consideration was not taxable in India as the title
in respect of the equipment’s was transferred outside India and the payments
were also received outside India. He held that a lot of activities relating to
marketing and sales took place in India. Further, the negotiations of prices
also took place in India. These facts, in the opinion of the AO, were clear
indicators of the GE India securing orders for GE Overseas. He further found
that GE Overseas, by remotely sitting in foreign countries, could not make any
sales, without the active involvement of GE India. This was held to be a
business connection of GE Overseas in India in terms of section 9 of the Act.
The AO, therefore, held that all the profits did not accrue or arise to the
assessee in the foreign soil, but part of such profits arising in India,
corresponding to the activities carried out in India, was chargeable to tax
under the Act. Such income accruing or arising was held to be liable to tax as
per the provisions of section 5(2) of the Act. Simply put, the AO has made out
a case that the GE overseas entities were having business connection under the
Act as well as permanent establishment under the DTAA in India in all the years
under consideration.
a)
In the context of above mentioned cases, discuss what can be the objectives and
importance of framing rules with respect to taxation of a business concern
which operates in more than one nation from taxation perspective?
b)
Elaborate, why the assessing officer is of the contention to treat GE India as
a permanent establishment in the given case?
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