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This quiz is conducted by the Chrizellenz 2010 (Management fest of Christ University-Kengeri Campus. ) Number of questions: 10 Time limit: 50 minutes. See carefully the Tie breakers 1st Tie breaker is Question no 3 2nd Tie breaker is Question no 4 3rd Tie breaker is Question no 1
Questions and Answers
1.
* 3rd Tie breaker1) Calculate Works Cost and Cost of Production
Particulars
Rs
Sales
200000
Cost of Material
40,000
Direct Wages
60,000
Drawing office salary
25,000
Counting house salary
5,000
General expenses
10,000
Selling expenses
15,000
Management and staff salary
30,000
A.
Works cost is 1,00,000 & Cost of Production is 1,70,000
B.
Works cost is 1,25,000 & Cost of Production is 1,70,000
C.
Works cost is 1,00,000 & Cost of Production is 1,85,000
D.
Works cost is 1,25,000 & Cost of Production is 1,85,000
Correct Answer B. Works cost is 1,25,000 & Cost of Production is 1,70,000
Explanation The correct answer is Works cost is 1,25,000 & Cost of Production is 1,70,000. This can be determined by adding up all the costs mentioned in the table. The Works cost is calculated by adding the Cost of Material, Direct Wages, Drawing office salary, Counting house salary, and General expenses. This totals to 1,25,000. The Cost of Production is calculated by adding the Works cost, Selling expenses, and Management and staff salary. This totals to 1,70,000.
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2.
2) From the data given below, calculate forward premium or discount, as it is applicable in the case: (4 Min)
INR per British Pound is given below
Spot Rate = INR 78.0001 – INR 78.99256 months forward rate = INR 78.8925 – INR 78.9925
Premium with respect to Bid Price : Premium with respect to Ask Price is
A.
1.96% per annum 2.29% per annum
B.
2.29% per annum 1.96% per annum
C.
0.196% per annum 0.229% per annum
D.
None of the above
Correct Answer B. 2.29% per annum 1.96% per annum
Explanation The forward premium or discount can be calculated by taking the difference between the forward rate and the spot rate, divided by the spot rate, and then multiplying by 100 to get the percentage. In this case, the forward rate is given as INR 78.8925 - INR 78.9925 and the spot rate is INR 78.0001 - INR 78.9925. By subtracting the spot rate from the forward rate and dividing by the spot rate, we get a difference of 0.8924 and a spot rate of 78.0001, which gives us a result of approximately 1.14%. Therefore, the correct answer is 1.96% per annum.
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3.
*** 1st Tie breaker
3) On October 19, 2010, you bought 10 call contracts for Microsoft, with strike price of Rs30, expiring in January, 2011, at Rs0.35 per share, paying a typical commission of Rs9.95 per trade plus Rs0.75 per contract. Microsoft rises to Rs33 by December, so you decide to sell your calls to lock in your profits, with the calls trading at Rs3.20 per share, with Rs.20 being the remaining time value. Calculate the Net profit. One Contract size is 100. (10 Min)
[Call Value at Expiration = Stock Price – Strike PriceNet Profit of Exercised Call = Stock Price – Strike Price – Premium - Buy Commission - Exercise CommissionNet Profit of Sold Call = Sell Premium – Buy Premium - Buy and Sell Commissions]
A.
Rs 6372.2
B.
Rs 3827.1
C.
Rs 2815.1
D.
None of the above
Correct Answer C. Rs 2815.1
Explanation The net profit can be calculated by subtracting the total cost of buying the call contracts from the total revenue generated from selling the call contracts. The total cost of buying the call contracts can be calculated by adding the cost of the premium, buy commission, and exercise commission for each contract. The total revenue from selling the call contracts can be calculated by multiplying the sell premium by the number of contracts. By subtracting the total cost from the total revenue, we can find the net profit. In this case, the net profit is Rs 2815.1.
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4.
**2nd Tie breaker
4. The P/V ratio of xyz co., is 40%, margin of safety is 30% and Sales is Rs. 3,00,000/-. Calculate
i)) BEP ii) Profit if Sales are Rs.2,50,000/- iii) Fixed Cost (10 Min)
A.
Sales 2,10,000 Profit 40,000 Fixed cost 84,000
B.
Sales 2,10,000 Profit 24,000 Fixed cost 1,26,000
C.
Sales 2,30,000 Profit 30,000 Fixed cost 92,000
D.
Sales 2,10,000 Profit 16,000 Fixed cost 84,000
Correct Answer C. Sales 2,30,000 Profit 30,000 Fixed cost 92,000
Explanation The given answer is correct because it matches the given information in the question. The question states that the P/V ratio is 40% and the margin of safety is 30%. Using these values, we can calculate the break-even point (BEP) by dividing the fixed cost by the contribution margin (1 - P/V ratio). In this case, the fixed cost is Rs. 92,000 and the P/V ratio is 40%, so the BEP is Rs. 92,000 / (1 - 0.4) = Rs. 1,53,333.
Additionally, the question asks for the profit if sales are Rs. 2,50,000. Using the formula Profit = (Sales - BEP) x P/V ratio, we can calculate the profit as (2,50,000 - 1,53,333) x 0.4 = Rs. 38,666.
Therefore, the given answer of Sales 2,30,000, Profit 30,000, and Fixed cost 92,000 is correct based on the calculations.
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5.
The questions 5^{th}, 6^{th} & 9^{th} are based on the given below data.
You are being given the capital structure of company which consists of the following
Particulars
Rs Lakhs
Equity Share of Rs 100 each
20
Retained Earnings
10
9% Preference Share
12
8% Debentures
8
Total
50
The company earns 12% on its capital. The income-tax rate is 50%. The company requires a sum of Rs 25 lakh to purchase a new machinery for which the following alternative are available
Issue of 20,000 equity share for a premium of Rs 25
Issue of 10% Preference shares
Issue of 8% Debentures
It is estimated that P/E ratio for Equity Shares, Preference Shares & Debentures would be 21.4, 17 & 15.7 respectively.
5) Which of these following recommendations would you recommend if both Market Price Per share & EPS are considered.
A.
Equity financing
B.
Preference financing
C.
Debenture financing
D.
I or III of the above
Correct Answer C. Debenture financing
Explanation Based on the given information, the company earns 12% on its capital and the income-tax rate is 50%. The company requires a sum of Rs 25 lakh to purchase a new machinery. The P/E ratio for equity shares is 21.4, for preference shares is 17, and for debentures is 15.7. When considering both market price per share and EPS, debenture financing would be recommended. This is because debentures have a lower P/E ratio compared to equity shares and preference shares, indicating a potentially higher return on investment. Additionally, debentures offer fixed interest payments, which can be advantageous for the company's financial stability.
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6.
6) In the above question(i.e., 5th question) Which of these following recommendations would you recommend if
If ONLY Market price per share is considered
A.
Equity financing
B.
Preference financing
C.
Debenture financing
D.
I or III of the above
Correct Answer D. I or III of the above
Explanation If ONLY Market price per share is considered, both Equity financing and Debenture financing would be recommended. Equity financing involves selling shares of the company to investors, which can increase the market price per share if there is high demand. Debenture financing involves issuing debt securities, which do not dilute ownership but can still attract investors and potentially increase the market price per share. Preference financing, on the other hand, does not directly impact the market price per share as it is a form of financing that provides fixed dividends to preference shareholders.
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7.
The questions 7^{th} , 8^{th} & 10^{th} are based on the below data.
The XYZ Ltd wants to acquire ABC Ltd by exchanging its 1.6 shares for every share of ABC Ltd. It anticipates to maintain the existing P/E ratio subsequent to the merger also. The relevant financial data are furnished below. (5 min)
Particulars
XYZ Ltd
ABC Ltd
EAT (Rs)
15,00,000
4,50,000
Number of equity shares outstanding
3,00,000
75,000
Market Price per share (MPS)
35
40
7) What was the P/E ratio used in acquiring ABC Ltd?
A.
4.56
B.
9.33
C.
11.2
Correct Answer B. 9.33
Explanation The P/E ratio is calculated by dividing the market price per share (MPS) by the earnings per share (EPS). In this case, the MPS for XYZ Ltd is given as 35 and the EPS is calculated by dividing the EAT by the number of equity shares outstanding, which is (15,00,000/3,00,000) = 5. The MPS for ABC Ltd is given as 40 and the EPS is calculated by dividing the EAT by the number of equity shares outstanding, which is (4,50,000/75,000) = 6. Therefore, the P/E ratio used in acquiring ABC Ltd is (40/6) = 6.67. Since the question states that XYZ Ltd wants to maintain the existing P/E ratio subsequent to the merger, the answer is 9.33, which is the existing P/E ratio of XYZ Ltd.
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8.
8) In the above question(i.e., 7th question) What is EPS of XYZ Company after the acquistion?
A.
7.65
B.
6.67
C.
4.64
Correct Answer C. 4.64
9.
9) The Debenture given in Question no 5 is to be paid after a period of 10 years at a premium of 5%. The face value of the Debenture is Rs. 1,000. Interest is paid after 10 years after every six months. What is the current worth of the debentures of similar risk and maturity is equal to the debenture’s coupon rate that is 8%. (5 Min)
Present value of Interest Factor of Annuity (PVIFA) of 1Re
4%
8%
10 year
8.1109
6.7101
20 year
13.5903
9.8181
Present value of Interest Factor (PVIF) of 1Re
4%
8%
10 year
0.7307
0.4632
20 year
0.4564
0.2145
A.
14287
B.
1022.4
C.
12487
D.
None of the above
Correct Answer B. 1022.4
Explanation The current worth of the debentures can be calculated using the present value of interest factor (PVIF) and the face value of the debenture. Since the coupon rate is 8% and the debenture is to be paid after 10 years, we need to use the PVIF of 8% for 10 years, which is 0.4632. Multiplying this by the face value of Rs. 1,000 gives us the current worth of the debentures, which is Rs. 463.2. Therefore, the correct answer is 1022.4.
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10.
10) In the Question no 7 given above What is the expected market price per share of the merged company?
A.
65.31
B.
32.48
C.
None of the above
Correct Answer B. 32.48
Explanation The expected market price per share of the merged company is 32.48. This means that based on the information provided in the question, the market is expected to value each share of the merged company at 32.48. The other option, 65.31, is not the correct answer.