NMIMS MBA APRIL 2022 ASSIGNMENT ANSWER SHEET by Prakash Singh

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1. Evan is a portfolio manager at Finance Advisors, a wealth fund. He is planning to include real estate in his portfolio. Explain the various approaches in detail that Eva can use to value the real estate. Also, mention the approaches for the valuation of REITS. 2. Seema is working as an intern at NMIMS Fund. Recently there have been lot of news related to the increased investment in the infrastructure segment by the investors. Prepare a report on behalf of Seema enlisting the forms of the infrastructure investments along with examples for each form. Also, list the benefits of investment in infrastructure segment. 3.a. ABC Capital is a hedge fund with an initial investment capital of $250 million. In its first year, the fund earns a return of 35%. The fund charges a 2% management fee based on assets under management at the end of the year and a 20% incentive fee net of management fee and also, there is a 5% hurdle rate calculated on beginning capital for the year. In the second year, the fund value declined by 10%. For the second year, calculate the following: a. Management Fees b. Incentive Fees c. Investor’s effective return 3.b. Enlist how the brownfield investments differ from greenfield investment. Also, for a company who is planning to expand its operations in foreign country which type of investment would be riskier and why?

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Case Studies & Projects Contact: Prakash Call us: +919741410271 Email: smu.assignment@gmail.com Visit: - https://www.mbaassignmentsolutions.com/ Business Economics 1. Given that the USD-SGD sport rate is 1.35 Calculate: a. The 90-day forward USD-SGD exchange rate, given that the  

90-day risk free interest rate in the United States is 1.25% 90-day risk free interest rate in Singapore is 2%

b. The 180-day forward USD-SGD exchange rate, given that the  

180-day risk free interest rate in the United States is 1.25% 180-day risk free interest rate in Singapore is 2%

c. If the risk free interest rate in the US remains the same, while the interest rate in Singapore increases by 25 bps, how would the calculations in (a) and (b) change. 2. The decisions made by different agents in an economy is described by the following equations: Consumption function: C = 40 + 0.8 (Yd); Yd = disposable income Tax function: T = 20 Investment function: I = 55 – 2r Government spending function: G = 20 Exports: X = 10 Imports: M = 10 a. Find the equation for goods market equilibrium for the economy described above. b. Given that the real interest rate in the economy is 4%, calculate i. Consumption

ii. Investment c. What would happen to the goods market equilibrium in the economy change, if the marginal propensity to consume decreases to 0.7 and the interest sensitivity of investment increases to 3? 3. Case: Please read the article from the link below and discuss the following based on the arguments given in the article. https://consumerist.com/2015/01/12/burger-king-brings-back-15-cent-chicken-nuggets-in price-war-with-mcdonalds/ a. What market structure exists in the market segment discussed in the article? How would you evaluate the action taken by the player(s)? b. If a new player is planning to enter this market segment, how would you advise them on product placement and pricing strategy?

1. You are helping a manufacturing firm decide whether it should invest in a new plant. The initial investment is expected to be Rs. 100 crores, and the plant is expected to generate aftertax cash flows of Rs. 8 crores for the next 20 years. An additional incremental investment of Rs. 10 crores will be needed to upgrade the plant in 10 years. If the discount rate is 10%, estimate the net present value of the project. 2. Keystone Energy Infrastructure Company currently has 2.5 million common shares of stock outstanding and the stock has a beta of 1.1. It also has $ 10 million face value of bonds

that have six years remaining to maturity and 9% coupon with annual payments and are priced to yield 8%. If the company issues up to $ 5 million of new bonds, the bonds will be priced at par and have a yield of 8%; if it issues bonds beyond $ 5 million, the expected yield on the entire issue will be 8.8%. The company management has learnt that it can issue new common stock at $ 10 a share. The current risk-free rate of interest is 3% and the expected market return is 10%. The company’s marginal tax rate is 25%. If the company raises $ 20 million of new capital while maintaining the same debt-to-equity ratio, what would be its weighted average cost of capital? 3. Blue Origin Exploration Company is expected to generate $ 5,000,000 in revenues and $ 1,500,000 in operating earnings next year. Currently, the company does not use debt financing and has assets of $ 10,000,000. Suppose the company were to change its capital structure, buying back $ 4,000,000 of stock and issuing $ 4,000,000 in debt. If we assume that interest on debt is 10% and income is taxed at 25%, what is the effect of debt financing on the company’s net income and return on equity if operating earnings may vary as much as 40% from expected earning operating earnings in following circumstances? a. When the company has no debt, and b. When the company has debt to total assets = 50%.

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1. The table mentioned below shows the “Gross Production of Energy by Two Sources in India from 2010-11 to 2015-16”. Adopt Exponential Smoothing Method. Consider the Alpha (α) values 0.2, 0.5, 0.7 and find out the one that is comparatively good for the prediction.

Forecast the value for year 2016-17. Year Coal - (Million Tones) 2010-11 532.7 2011-12 539.95 2012-13 556.4 2013-14 565.77 2014-15 609.18 2015-16 639.23 Source: Open Government Data (OGD) Platform India

Lignite - (Million Tones) 37.73 42.33 46.45 44.27 48.27 43.84

2. Consider the following Decision alternative for the Raman Pahwa, he wants to invest in stocks, and thought about two situations about tomorrow’s market condition. The figures (in INR) in the following table exhibit profit per unit of stock-investment. payoff table: Lakshmi pvt ltd Mehta Groups of industries Surya LT energy

Favorable market 55 43 29 15

Unfavorable market 26 38 43 51

1. Draw the decision tree 2. If we assign the following probabilities to the states of nature, then determine the EMV decision. P(s1) = .4 P(s2) = .1 P(s3) = .3 P(s4) = .2 3.a. The proportion of eligible voters in the next corporation election (in tumkur) who will vote for the incumbent is assumed to be 55%. What is the probability that in a random sample of 500 voters less than 49% say they will vote for the incumbent? Write your conclusion. 3.b. The top-selling Amar tire is rated 70,000 KMs, which means nothing. In fact, the distance the tires can run until they wear out is a normally distributed random variable with a mean of 82,000 KMs and a standard deviation of 6,400 KMs. What is the probability that a tire wears out before 70,000 KMs? What is the probability that a tire lasts more than 100,000 KMs? Note: You may use Z-table for this. Z-table link- Normal Table.xls

1. Define the terminal value of the following portfolio: a long forward contract on an asset and a long position in a European put option on the asset with the same maturity as the forward contract and a strike price that is equal to the forward price of the asset at the time the portfolio is set up. Show that the European put option has the same value as a European call option with the same strike price and maturity. 2. A financial institution has entered into a 10-year currency swap with company Y. Under the swap terms, the financial institution receives interest at 3% per annum in Swiss francs and pays interest at 8% per annum in U.S. dollars. Interest payments are exchanged once a year. The principal amounts are 7 million dollars and 10 million francs. Suppose that company Y declares bankruptcy at the end of year 6, when the exchange rate is $0.80 per franc. What is the cost to the financial institution? Assume that, at the end of year 6, the interest rate is 3% per annum in Swiss francs and 8% per annum in U.S. dollars for all maturities. All interest rates are quoted with annual compounding. 3. Find the forward cost of a 10-month forward contract on a stock when the stock price is $50. We assume that the risk-free interest rate (continuously compounded) is 8% per annum for all maturities. a. The stock pays no dividend till maturity. b. The stock pays dividends of $0.75 per share are expected after 3 months, 6 months, and 9 months.

1. As a Prospective investor, Ramesh is very confused on the various definitions of stock price. While attempting to invest, he comes across terms like par value, market Value and book value. Please help ramesh decipher the meaning of these terms, identifying the most relevant among the three and why? 2. What is industry life cycle models? Discuss the various phases in the life cycle of an industry and the implications, limitations of each stage in forecasting the industry performance. 3.a. From the following information of Best Ltd. ascertain the current intrinsic value of each share of the company:     

Recent EPS = INR 2.00 Growth rate (constant) = 5% Dividend Payout Ratio = 50% Required Rate of Return = 10% After five years the P/E ratio is 10.5

3.b. Find below the data of five securities for the year 2020 and 2021. Using the price- Weighted index, calculate: The price return index for the year 2021. Securities A B C

Price at the end of 2020($) 42 38 30

Price at the end of 2021 ($) 40 45 38

D E

32 58

42 47

1. Only through the fair treatment of all parties can the investment management profession maintain the confidence of the investing public. Elaborate this statement with examples with reference to the relevant standard. 2. Exercise diligence, independence and thoroughness in analyzing investments, making investment recommendations and taking investment actions. Elaborate this statement with examples with reference to the relevant standard. 3. Nimisha Shah resigned from NextGeek Technologies as a market analyst who is also a candidate of CFA. She has accepted a position with a company abroad who operates in different industry not a direct competition to NextGeek. When packing up her office, she had collected all the things that belonged to her while doing that she found a copy of analytical sector report that she worked on during her tenure at NextGeek. Nimisha wanted to take the hardcopy of that report as it was her work and she had pride in it, she took it along with her while leaving. a. Explain the relevant Standard in this situation. b. In the given situation, do you think was there any violation or non-violation of the standard? Justify.

1. A company's capital structure is said to be "Complex Capital Structure" when the company has issued FOUR types of securities and in such case the EPS is presented as Basic EPS and Diluted EPS. Which of the securities constitute the complex capital structure? Suppose that ABC Limited provides the below information pertaining to FY21: Basic EPS = INR 1.37 per share. EBIT = INR 12 millions. The company also has 11% convertible preference share capital of INR 25 millions (face value of INR 50 each). The company's applicable tax rate is 20%. Compute the basic and diluted EPS of the company for FY21. Also explain why the Diluted EPS will always be less than or equal to Basic EPS. 2. XYZ Ltd closes its books every year on 31-March. It reported a profit of INR 500 crores and INR 550 crores for the accounting years 2019-20 and 2020-21 respectively. The company claims that the profits of the company have increased by 10%, despite the COVID pandemic. Mr. Advik is an analyst and is keen to know if the company delivered a similar performance from the cash generation perspective by its operational activities. He collects additional information as below: Depreciation on PPE were INR 75 Crores both the years, there was a sale of a fully written down machinery on 30-Sep-2020 and the sale proceeds included INR 25 crores (adjusted for taxes) and the company had paid interests of INR 10 crores and INR 12.5 crores in FY20 and FY21 respectively (Company's policy is to treat interest costs as financing cash flow, but makes no adjustments to tax expense due to the interest component). Taxes paid were at 25% on PBT both the years. Assume that there were no changes in working capital items. Give any two reasons why companies may have higher profits in their income statement, yet show a lesser cash generation during the same period. Compute and compare the cash flow from operations of FY20 and of FY21.

3. Pyramid Limited is a company that manufactures semi-finished components used in automobiles industry. You are provided below with the Summarized Balance Sheet and Summarized Income Statement along with the industry average. Pyramid Limited Balance Sheet (in Rs. Lacs) Particulars I. EQUITY AND LIABILITIES (1) Shareholders' Funds (a) Share Capital (b) Reserves and Surplus Total Equity (2) Non-Current Liabilities (a) Long-term Liabilities (b) Other long-term Liabilities Total Long-term Liabilities (3) Current Liabilities (a) Trade Payables Total Current Liabilities TOTAL EQUITY & LIABILITIES II. ASSETS (1) Non-current Assets (a) Fixed Assets (b) Non-current Investments Total Non-Current Assets (2) Current Assets (a) Inventories (b) Trade Receivables (c) Cash and Bank Balances Total Current Assets TOTAL ASSETS

2012

₹ 4,562.85 ₹ 1,261.30 ₹ 5,824.15

₹ 6,975.25 ₹ 3,990.50 ₹ 10,965.75

₹ 1,000.50 ₹ 540.25 ₹ 1,540.75

₹ 750.35 ₹ 200.55 ₹ 950.90

₹ 590.65 ₹ 590.65 ₹ 7,955.55

₹ 1,030.50 ₹ 1,030.50 ₹ 12,947.15

₹ 4,890.50 ₹ 1,390.00 ₹ 6,280.50

₹ 8,980.55 ₹ 2,600.65 ₹ 11,581.20

₹ 365.00 ₹ 740.50 ₹ 569.55 ₹ 1,675.05 ₹ 7,955.55

₹ 150.55 ₹ 900.65 ₹ 314.75 ₹ 1,365.95 ₹ 12,947.15

Pyramid Limited Income Statement (Rs. Lakhs) Particulars REVENUES Less: Direct Expenses (COGS) Gross Profit Less: Indirect Expenses EBITDA (Cash Operating Profit) Less: Depreciation & Amortisation EBIT (Operating Profit)

Industry Average

2012 ₹ 12,145.28 ₹ 6,597.65 ₹ 5,547.63 ₹ 2,038.35 ₹ 3,509.29 ₹ 929.20 ₹ 2,580.09

Industry Average ₹ 20,994.20 ₹ 9,654.78 ₹ 11,339.42 ₹ 5,876.82 ₹ 5,462.60 ₹ 1,347.08 ₹ 4,115.52

Less: Non-Operating Expenses (Interest) EBT (Pre-tax Profit) Less: Taxes PAT (Net Profit) Additional Assumptions: Number of Outstanding Shares (Rs. 10 each) Dividends Paid Market Price of Share

₹ 120.06 ₹ 2,460.03 ₹ 738.01 ₹ 1,722.02

₹ 456.29 ₹ 861.01 ₹ 99.61

₹ 86.29 ₹ 4,029.23 ₹ 1,208.77 ₹ 2,820.46

₹ 697.53 ₹ 1,410.23 ₹ 134.65

You are required to: a. Comment on the financial performance/position of Pyramid Limited by computing the following ratios: (i) Return on Equity (ii) Return on Total Capital (iii) Operating Profit Ratio (iv) Net Profit Ratio (v) Price to Earnings Ratio. b. Comment on the financial performance/position of Pyramid Limited by computing the following ratios: (i) Debt to Asset Ratio (ii) Interest Coverage Ratio (iii) Current Ratio (iv) Quick Ratio (v) Dividend Payout Ratio.

1. Olive and Smith were arguing over the difference between the CMBS and RMBS. Olive argued that the only difference in the CMBS and RMBS is in terms of the underlying loans

while Smith argued that the two differs in terms of the structure and call protection measures. Provide a detailed argument on behalf of Smith. 2. One of the most common measures of estimating the changes in the bond prices due to the change in the underlying yield-to-maturity of the bond is Macaulay Duration. While it is argued that Macaulay Duration is not an appropriate way of forecasting the change in the bond prices for large change in the bond’s YTM. Prove the above statement with the help of a numerical example. Also, mention which other duration measure would be a better approximation than Macaulay Duration along the with numerical proof based upon the example taken earlier. 3.a. A 10% U.S. corporate bond is priced for settlement on July 15, 2022. The bond makes semiannual coupon payments on Feb 15 and Aug 15 of each year and matures on Aug 15, 2027. The bond uses the 30/360 day-count convention for accrued interest. Calculate the full price, the accrued interest, and the flat price per USD 100 of par value for stated annual yields-to-maturity of 12%. 3.b. Diana was having an argument with Steve that duration alone is a very good measure for estimating the changes in the bond prices due to the changes in the yield-to-maturity (YTM). While Steve argues that duration alone is not an accurate way of measuring the changes in the bond prices due to the changes in the underlying YTM of the bond. Out of both statements, which statement is correct and why. Please provide the explanation as well.

1. A portfolio is constructed with 40% in stock A, whose standard deviation is 20% and 60% in bonds, whose standard deviation is 12%. The correlation between the returns of the stock

and the bond is 0.45. What will be the standard deviation of portfolio returns? How would the standard deviation change, if the correlation coefficient would be -1 or 0 or 1? 2. As a portfolio manager, you will be dealing with multiple kinds of clients, each of whom come with unique preferences. In this context, explain the different types of investors and their characteristics. Wherever possible, provide a real life example. 3. An analyst collated the below data: Stock SAI CICIC FDHC ICFD MKB

Current Market Price 100 10 60 1110 457

Expected Price after a year 115 12 72 1190 501

Expected Dividend during the year 10 0.50 0 50 10

Beta 1.0 0.75 1.25 1.10 1.65

The risk free rate can be taken as 5.5% and the market risk premium according literature can be taken as 10%. a. Draw the Security Market Line & suggest an appropriate trading advise for each of the three stocks. b. What are the assumptions made while applying CAPM.

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Quantitative Methods - Concepts and Applications

1. Differentiate between the various measures of dispersion with specific applications to business analysis. 2. Comment on the concept of Hypothesis Testing with suitable examples. 3.a. What do you mean by estimation? 3.b. Differentiate between the sampling techniques used in business analysis.

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1. The capital structure of ABC Pvt. Ltd is as follows: Equity share capital (each share of Rs. 10) = Rs. 10,00,000 Debentures with a coupon rate of 9.5% = Rs. 8,00,000 Reserves and surplus = Rs. 7,00,000 Revenue from the business activities for the company is Rs. 1.50 crores. Its variable cost is 8% of the revenue, fixed operating cost is Rs. 48 lakhs and the company pays income tax at a rate of 25%. a. Calculate financial leverage, operating leverage and combined leverage for the company. b. Determine the likely level of EBIT for EPS of (i) Rs. 20, (ii) Rs. 30, and (iii) Rs. 45 2. The equity shares of a publicly traded company are priced at Rs. 450 with P/E (Price to Earnings) ratio of 15. The announces a dividend of Rs. 9 per shares. The shareholders of the company expect the dividend to grow at a rate of 6% every year, and the cost of equity for the company is 15%. According to the dividend relevance approach suggested by Walter and

Gordon, what would be the impact of dividend announcement on the market price of the shares of the company if required rate of return for investors is (i) 12%, (ii) 15% and (iii) 18%. 3. A manufacturing company forecast that it is likely to sell 6,00,000 units for the year 2021. The processing cost of an order is Rs. 150 and the carrying cost per unit of inventory is Rs. 12. The lead time of an order is 8 days. a. What would be the economic order quantity (EOQ) and re-order point assuming 300 days in a year. b. The company implements business process reengineering which results in to reduction of 20% in cost of an order, 10% in carrying cost per unit of inventory and 25% in lead time of an order. What would be the new EOQ and re-order point.

1. What is an Options contract? Explain “Right but not obligation”. You have bought a Call Option on a stock of HLU Ltd. with expiration date of 31 March 22. The Strike price is Rs. 200 and the Option premium you paid for the option is Rs. 20. What would be the impact of the following spot prices on 31 March 22 on your decision to exercise the option? As a holder of the option, what would be the profit or loss amount in each of these spot prices? Also compute the profit or loss to the writer of the option in each of these scenarios. Assume that the option writer would need to buy the stock at the spot price on the expiration date in case you decide to exercise the option.

Spot price on 31 March 22: Rs. 100, Rs. 150, Rs. 200, Rs. 250, Rs. 300 and Rs. 350 2. In the context of bonds, what is a Yield curve? What are the types of Yield curves and what does it represent about the market outlook? Using the following data tables draw the yield curves and identify the type of yield curve. Scenario 1

Scenario 2

Period to maturity 1 Year 2 years 3 years 5 years

Yield 0.75% 1.00% 1.25% 2.00%

Period to maturity 1 Year 2 years 3 years 5 years

Yield 1.00% 1.05% 1.10% 1.15%

Scenario 3 Period to maturity 1 Year 2 years 3 years 5 years

Yield 1.00% 1.00% 0.95% 0.90%

3.a. Explain the concept of Time value of money. 3.b. In the context of capital budgeting explain Sensitivity analysis and Scenario analysis. What are the differences of the two?

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Research Methodology

1. The central bank of a country is exploring options to boost the economic activities post COVID. They are thinking to change the various interest rates to motivate investments and economic transactions. However, they are not sure whether this would yield the desired results. The research team in the bank have come up with a set of hypotheses and they are confident of conducting a research and finding the outcome. Answer the following questions: What is hypothesis testing in research? Write the steps which is followed for the same. Include details of null and alternate hypothesis in your answer. 2. While going through a research paper in a leading journal you have came across the following model comprising multiple variables: Brand Image

Service Quality CRM Quality

Customer Loyalty

Customer Satisfaction

Answer the following questions: What is meant by ‘variables’ in research? Identify and describe the following: dependent variable, independent variable, mediating variable and moderating variable. 3. A major FMCG company headquartered in Mumbai, is planning to diversify its product portfolio. As part of the attempt, they have decided to launch a new product which is more of an ayurvedic variant of one of their famous oral hygiene brands. The research and development team have already come up with the composition and orders have been placed for manufacturing of the units. However, the managers are still not clear whether they should launch the product in western India first or it should be launched nationwide at the same time. You as a research consultant have been hired to look into the case. You have decided to use the hypothetico-deductive method to arrive at the conclusions.

a. Identify and explain the broad problem area. b. How would you like to proceed further?

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1. Consider a hypothetical project of conducting Annual Day in your university. In this context, explain how different Project Life Cycle Models can be considered. Write examples for each PLC Models in your answer and suggest which model will be the best suitable for this case. 2. India’s Road and Transport Ministry has taken-up various Expressway Road Projects in the country. One of the such project consist of following broad scope of work: a. Constructing roads b. Constructing tunnels c. Constructing bridges over river d. Constructing flyovers and junctions e. Constructing convenient places (fuels stations, rest areas, etc.) f. Developing a solution for speed monitoring g. Finding suitable road material for areas in heavy flood zone Prepare three types of project organization structures for this case. Evaluate and suggest the best suitable structure for the given project. 3. Answer the following questions.

a. A project manager is struggling to select one of the following three options. Use appropriate method to evaluate the projects based on the given information. I: Initial investment C1 to C6: Cash flow at the end of Year-1 to Year-6 respectively. Project-01 Project-02 Project-03

Cashflow Cashflow Cashflow

I -20 -25 -30

C1 5 10 10

C2 5 5 10

C3 5 5 5

C4 5 5 5

C5 5 5 5

C6 5 5 5

Consider Discounting Rate as 8% per year. b. India’s Road and Transport Ministry has taken-up various Expressway Road Projects in the country. One of the such project consist of following broad scope of work: a. Constructing roads b. Constructing tunnels c. Constructing bridges over river d. Constructing flyovers and junctions e. Constructing convenient places (fuels stations, rest areas, etc.) f. Developing a solution for speed monitoring g. Finding suitable road material for areas in heavy flood zone Prepare the Work Breakdown Structure for this project.