AFSA Nov10

SPJCM GMBA Nov 2010 AFSA FINAL EXAMINATION

TIME 2.5 HRS. MARKS: 45

PL WRITE ALL ANSWERS TO THE POINT AND IN BRIEF.

Q.1. The Balance Sheet of two companies A (Standalone ) and its 60% subsidiary S for Financial year ended 2009 is given below:

Figures in Millions $

Company A

Particulars		Particulars
Shareholders Funds	700	Net Fixed Assets	700
Long term loans	250	Current Assets	300
Current Liablities	250	Investments	200
	1200		1200

Company S

Particulars		Particulars
Shareholders Funds	124	Net Fixed Assets	204
Long term loans	150	Current Assets	120
Current Liabilities	50
	324		324

· Company A acquired 60% of Company S a year back and the Company’s S Equity (100%) was valued at 200 Mn against a book value of 100 Mn. The Fair value of the assets was revised upwards to 120. The excess of 100 was allocated accordingly to plant and machinery and Goodwill. The excess of 20 allocated to plant and machinery can be depreciated over the next 5 years. Company A has also a minority stake in another Company, which is included in ts investments. During the one year period the subsidiary made a profit of 24 mn and the present book value is 124 Mn . Company A is following Equity method of accounting for valuing its investment.

i) Make a consolidated Balance Sheet for 2009.

ii) What’s the value of Company A Minority investment in 2009.

iii) What’s the rationale for not amortising goodwill as per any fixed rate.(IFRS)

iv) What would have been the investments in books of A if it was valuing investment at cost------9 marks

Q.2. The following data appears on the cash flow statement of a company ABC for the year 2003:

Capital investments: 12,50,500

PAT 9,17,500

Depreciation: 16,13,000

The other information available to you is:

Gross Plant Property & Equipment 31/03/2002: 84,31,500

Gross Plant , Property & Equipment , 31/03/2003: 84,30,000

Accumulated Depreciation 31/03/2003 : 38,74,000

During the year the Company also got rid of a fully depreciated equipment

i) Find out the gross value of the equipment that the company got rid off.?

ii) Find out the change in the Net PPE for the current year--- (1.5 x 2=3 marks) Answer in brief.

Q3. Pl find attached the Balance Sheet and Profit and loss account for L&T . You are required to do the following:

Make a Managerial Balance Sheet for the last 6 years.

Do a Dupont Analysis for ROE for the last 5 years. The ROE analysis should be based on average Equity. Comment on your observations on ROE by also looking at Common Size Statement Analysis—

For The last three years calculate FCFF. Whats the economic interpretation of FCFF -12

Q4. Briefly answer the following-- 1 x4= 4 marks

1) What do you understand from Financial Flexibility? How do firms achieve Financial Flexibility?

2) Why do High Growth Companies trade at High PE ratio?

3) Global Norm for ROA on Banks is 1% . How does a Bank achieve a ROE OF 16%.? What is Net Interest Margin.

4) What is Non Cash ROE ? Why is it important to look at Non Cash ROE for Companies like Infosys?

Q.5. Briefly discuss how the stock options accounting is done as per IFRS. Please show the appropriate entries in P&L and Balance Sheet Over the next 5 years of Vesting Period. How does it results in creation of Deferred Tax Asset? How are Deferred Taxes Assets and Liabilities treated in ROC calculation -- 3 marks

Q.6. Briefly discuss the following:(7m)

1. Altaman Z Score model . How is credit rating linked to Altaman Z score--- 2 marks

2. Impact of capitalization of R&D expense on the Balance Sheet/ P&L/ FCFF and Overall valuation - 2 marks

3. A Company issues a zero coupon 5 year convertible bond . The normal cost of debt for the Company is 8% . As per IFRS accounting standard split the proceeds of 100 into debt and equity component. If the Bond is not converted for the next 5 years, and it follows effective interest method, show the impact on P&L and Balance Sheet over the next 5 years. -- 3 marks

Q.7. Comment on Following :(7m)

1) The India Cements stock has most of the times traded at P/BV<1. Does it represent a good value based investment opportunity? Discuss your answer in light of the basic determinants of P/BV ratio.—2 marks

2) Infosys Stock is currently trading at 2900. If the Company expects to grow at 15% its net profits and EPS and EPS IN 2012 is expected at RS. 130. Comment on the valuation of the stock in terms of PE/PEG Ratio.—2 marks

3) HDFC Bank is expected to make a ROE of 20% based on the current leverage over the next 5 years. What’s the maximum growth they can achieve if they don’t raise any

i) Fresh Equity and maintain the same leverage

ii) Fresh equity and increase the Leverage.

You can answer this making suitable assumptions -- 3 marks

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