(a) Umar buys 20,000 shares of X Ltd. at a price of 11 per share
whose beta value is 1.5 and sells 5,000 shares of Umar Ltd. at a price of 40 per share having a beta value of 2. He obtains a complete hedge by Nifty futures at 1,000 each. He closes out his position at the closing price of the next day when the share of Umar Ltd. dropped by 2%, share of Umar Ltd. appreciated by 3% and Nifty futures dropped by 1.5%.
Interpret the overall profit/loss of Umar ?.
(b) ABC .'s current financial year's income statement reported its net income after tax as ` 50 Crore.
Following is the capital structure of STR Ltd. at the end of current financial year:
Debt (Coupon rate = 11%) 80Crore
Equity (Share Capital + Reserves & Surplus)
Following data is given to estimate cost of equity capital:
Asset Beta of TSR Ltd. 1.11
Risk -free Rate of Return8.5%
Average market risk premium 9%
The applicable corporate income tax rate is 30%.
Estimate Economic Value Added (EVA) of RST Ltd. in lakh.
(c) TRC Cables Ltd. (an Indian Company) is in the business of manufacturing Electrical Cables and Data Cables including Fiber Optics cables. While mainly it exports the manufactured cables to other countries it has also established its production facilities at some African countries' due availability of raw material and cheap labour there. Some of the major raw material such as copper, aluminum and other non-ferrous metals are also imported from foreign countries. Hence overall TRC has frequent receipts and expenditure items denominated in Non-INR currencies.
Though TRC make use of Long-Term Debts and Equity to meet its long term fund requirements but to finance its operations it make use of short-term financial instruments such as Commercial Papers, Bank Credit and Term Loans from the banks etc. If any surplus cash is left with TRC it is invested in interest yielding securities. Recently due to stiff competition from its competitors TRC has relaxed its policy for granting credit and to manage receivables it has formed a separate credit division.
Further to hedge itself against the various risk it has entered into various OTC Derivatives Contracts settled outside the Exchange.
Evaluate the major risks to which TRC Ltd. is exposed to
426,507 students got unstuck by Course
Hero in the last week
Our Expert Tutors provide step by step solutions to help you excel in your courses