PROGRAM - MBA
SUBJECT CODE & NAME - MF0010 & SECURITY
ANALYSIS AND PORTFOLIO MANAGEMENT
1. Describe the investment process.
The Investment Process
It is
rare to find investors investing their
entire savings in a single security. Instead,
they tend to
invest in a
group of securities.
Such a group
of securities is called
a portfolio. Financial
experts stress that
in order to minimise risk an investor should hold a well-balanced investment portfolio.
The investment process
describes how an
investor should decide
the securities to invest in while constructing a portfolio, how he
should spread the investments,
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2. Write about the secondary
markets? Explain the role of financial intermediaries.
Introduction of secondary markets
Secondary market is the place where original purchases of
securities trade those securities.
These securities may
trade repeatedly in
the secondary market, but
the original issuers
will be unaffected.
This means that
they would not receive
any additional cash
from those transactions.
Cash is received by the person
who sells the security and not the issuer. Functioning of primary markets
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3. Explain the meaning of risk.
Describe the factors that affect risk
Meaning of Risk
Risk is
the likelihood that
your investment will
either earn money
or lose money. It is the degree
of uncertainty regarding your expected returns from your investments,
including the possibility
of losing some
or all of
your investment. Risk includes
not only adverse
outcomes (lower returns
than expected) but good outcomes (higher returns). Both downside and upside risks are considered
while measuring risk.
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4. Briefly explain the variables
that are analyzed in economy analysis.
Economic analysis is done for two reasons:
• A
company’s growth prospects are dependent on the economy in which it
operates.
• Most
companies’ shares and
stocks generally perform
well when the economy is in boom.
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5. Explain about technical
indicators and How are they used?
Technical indicators: Technical
analysts also use
technical indicators besides charts
to assess prospects
for market declines/advances. A technical indicator is a series of data
points that are derived by applying a formula to the price data of a security. Price data
includes any combination of the open, high, low or close prices over a period
of time.
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6. Explain the assumptions of
Capital Asset Pricing Model (CAPM). Give a short note on Separation Theorem,
Capital Market Line(CML) and Security Market Line (SML)
Assumptions of CAPM
• All investors are assumed to follow the
mean-variance approach, i.e. the risk-averse investor will ascribe
to the methodology of reducing portfolio risk by combining assets with
counterbalancing correlations.
·
Assets are infinitely divisible.
·
There is a risk-free rate at which an
investor may lend or borrow. This risk-free rate is the same for all
investors.
·
Taxes and transactions costs are
irrelevant.
·
All investors have same holding period.
·
·
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PROGRAM - MBA
SUBJECT CODE & NAME - MF0011 & MERGERS AND
ACQUISITIONS
1. Explain the five stage model of
mergers and acquisitions.
To examine the issues that may
contribute to the failure of acquisition and value destruction,
a five-stage model
of mergers and
acquisitions was developed by the
author Sudi Sudarsanam. This model advocates a view of M &
A as a process rather than a transaction. The process is considered as a
multi-stage one and a holistic view of the process is required to appreciate
the links between different stages and develop effective value-creating M & A strategies.
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2. What do you understand by
demerger? Write about the tax implications of demergers. Explain the
characteristics of demerger.
Meaning of Demerger
Large entities
sometimes hinder entrepreneurial initiative,
side-line core activities, reduce
accountability and promote
investment in non-core activities. There
is an increasing
realisation among companies
that demerger may allow them to strengthen their core competence and
realise
the true
value of their
business. Demerger is
often used to
divide or separate some
undertakings of a
business, functioning till
then under a common
umbrella. It is a way
to get rid
of underperforming or
non-core business divisions that can drag down profits.
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3. Explain about Employee Stock
Ownership Plans (ESOP). Write down about
the rules of ESOP and types of ESOPS.
ESOP
Employee-owned
corporations are corporations owned wholly
or in part by the employees. Employees are usually given a share of the
corporation after a certain length
of employment or
they can buy
shares at any
time. A corporation owned
entirely by its employees (a worker cooperative) will not,
therefore, have
its shares sold
on public stock
markets. Employee-owned
corporations often adopt profit-sharing where the profits of the corporation
are shared with the employees. These types of corporations also often have
boards of directors
elected directly by the employees.
In the USA,
employee-owned corporations
are often created
through Employee Stock Ownership Plans
(ESOPs). A notable
example of one
type of employeeowned corporation is the UK firm John
Lewis.
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4. Write Short notes on :
i) Exchange rates
ii) External advantages in differential products.
iii) Political and economic stability
i) Exchange rates
Foreign exchange rates
affect international mergers in a number of ways. The advantages and
disadvantages of the domestic versus foreign currency can affect a company’s
economic factors such as the cost of the acquisition, the financing, expenses
of running the firm and the repatriated profits’ value
to the parent.
Currency translation profits and losses
in financial reporting can occur due to accounting conventions
Example
The acquisitions by
Union Pacific Resources and the CIT Group (both US companies) of Canadian firms
were facilitated by the decline in the value of the Canadian dollar in 1998 and
1999.
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5. Give the
meaning of buyback
of shares. Explain
the objectives and
guidelines for buyback of shares.
Meaning of buyback of shares
Sections 77A,
77AA and 77B of the
Companies Act, 1956
contain the provisions regulating
buyback of shares.
These were inserted
by the Companies (Amendment) Act,
1999. The Securities and Exchange Board of India (SEBI)
framed the SEBI
(Buyback of Securities)
Regulations, 1999 and the
Department of Company
Affairs framed the
Private Limited Company and
Unlisted Public Company
(Buyback of Securities)
Rules, 1999 pursuant to Sections 77A(2)(f) and (g) respectively.
Objectives of buyback
The company
may buy back
shares for one
or more of the following reasons:
(i) To increase promoters’ holding.
(ii) Increase earnings per share.
(iii) Rationalise the capital structure by writing
off capital not represented by available assets.
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6. Explain the methods of
accounting of amalgamation with example.
Pooling of interests method
Pooling of interests
refers to the adding together of interests of the merging entities. The method
involves the following steps:
1. The
assets, liabilities and
reserves of the
transferor company are recorded by the transferee company at
their existing carrying amounts (unless, of course, adjustment is necessary due
to different accounting polices);
2. The
balance of the
profit and loss
account of the
transferor company should be
aggregated with the corresponding balance of the transferee company or
transferred to the General Reserve, if any; and
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MF0012 – Taxation Management
Q1. Explain the objectives of tax
planning. Discuss the factors to be considered in tax planning.
Objectives of Tax Planning: The prime objectives of tax planning
are:
a. Reduction of tax liability by utilising the
benefits available in the tax laws.
b. Informed and pragmatic financial decisions: A
person adds the dimension of tax incidence in his decision-making on financial
matters, and this helps him optimise his decisions.
c. Multi-dimensional
investment decisions: In a democratic welfare state like India the
government requires substantial investment in infrastructure, education and
healthcare. The tax laws give attractive benefits to investors in these areas;
and by
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Q2. Explain the categories in Capital
assets.
Mr.
C acquired a plot of land on 15th June, 1993 for 10,00,000 and sold it on 5th
January, 2010 for 41,00,000. The expenses of transfer were 1,00,000. Mr. C made
the following investments on 4th February, 2010 from the proceeds of the plot.
a)
Bonds of Rural Electrification Corporation redeemable after a period of three
years, 12,00,000.
b)
Deposits under Capital Gain Scheme for purchase of a residential house 8,00,000
(he does not own any house).
Compute
the capital gain chargeable to tax for the AY2010-11.
Answer:
Categories of capital assets
For taxation purposes, the capital assets have been, divided into
(a) short-term capital assets and (b) long-term capital assets.
(a) Short-term capital assets: According to Section
2(42A), a short-term capital asset means a capital asset held by an assessee
for not more than:
a. 12 months before its transfer in case of company shares,
(equity or preference), or any other security listed in a recognized stock
exchange, or units of UTI and mutual funds or a zero coupon bond, and
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Q3.
Explain major considerations in capital structure planning. Write about the
dividend policy and factors affecting dividend decisions.
Major considerations in capital structure planning
Broadly, the following factors would be worth considering, while
planning the capital structure.
1. Risk of two kinds, that is, financial risk and business
risk: In the context of capital structure planning, financial risk is
more relevant. Financial risk is of two types:
(a) Risk
of cash illiquidity: As a firm raises more debt, its risk of cash
illiquidity increases. This is for two reasons. First, higher proportion of
debt in the capital structure increases the commitments of the company with
regard to fixed charges that is, interest on borrowed capital and instalments
in which it has to be repaid. If
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Q4. X Ltd. has Unit C which is not
functioning satisfactorily. The following are the details of its fixed assets:
Asset
The
written down value (WDV) is Rs. 25
lakh for the machinery, and Rs.15 lakh for the plant. The liabilities on this
Unit on 31st March, 2011 are Rs.35 lakh.
The
following are two options as on 31st March, 2011:
Option
1: Slump sale to Y Ltd for a consideration of 85 lakh.
Option
2: Individual sale of assets as follows: Land Rs.48
lakh, goodwill Rs.20
lakh, machinery Rs.32 lakh, Plant Rs.17 lakh.
The
other units derive taxable income and there is no carry forward of loss or
depreciation for the company as a whole. Unit C was
started on 1st January, 2005. Which option would you choose, and why?
Computation
of Capital Gains
|
Solution:
|
|
|
|
|
|
|
|
Option
1: Slump sale
|
|
|||||
|
Computation
of net worth of Unit C
|
In
lakhs
|
|||||
|
Land
(book value)
|
30
|
|||||
|
Goodwill
(book value)
|
10
|
|||||
|
Machinery
(WDV)
|
25
|
|||||
|
Plant
(WDV)
|
15
|
|||||
|
Total
|
80
|
|||||
|
Less:
Liabilities
|
35
|
|||||
|
Net
worth
|
45
|
|||||
|
Computation
of capital gain
|
|
|||||
|
Sales
consideration
|
85
|
|||||
|
Less:
Net worth
|
45
|
|||||
|
Long-term
capital gain
|
40
|
|||||
|
Computation
of tax liability
|
|
|||||
|
Tax
on ` 40 lakh at the rate of 20%
|
8
|
|||||
|
Add:
Surcharge 10% of tax
|
0.8
|
|||||
|
Tax
and surcharge
|
8.8
|
|||||
|
Add:
Education cess 3%
|
0.264
|
|||||
|
Tax
liability under Option 1
|
|
|
|
9.064
|
||
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Q5.
Explain the Service Tax Law in India and concept of negative list. Write about
the exemptions and rebates in Service Tax Law.
Service Tax Law in India: Service tax was introduced in India in
1994 by Chapter V of the Finance Act, 1994. It was imposed on an initial set of
three services in 1994 and the scope of the service tax has since been expanded
continuously by subsequent Finance Acts.
There is no separate Service Tax Act, but all pronouncements
relating to service tax are in the annual Finance Acts. Service Tax Rules, 1994
were enacted to begin with, and with notifications from time to time the law
has been amended and updated.
The
new section 65B introduced in the Finance Act, 2012 defines services in Clause
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Q6. What do you understand by customs
duty? Explain the taxable events for imported,warehoused and exported goods.
List down the types of duties in customs.
An importer imports goods for
subsequent sale in India at $10,000 on assessable value basis. Relevant
exchange rate and rate of duty are as follows.
Calculate
assessable value and customs duty.
Answer:
Customs Duty: Customs duty is
the duty imposed on goods imported into the country. In the years before
globalisation it was difficult to import goods on account of stiff duty rates
and procedures, especially for less developed and developing nations like
India. Ajoke used to be that the word ‘customs’ was said to come from Sanskrit
‘kashtam’ meaning difficulty.
But the
origin of the word is something else. Centuries ago, it was customary for a
trader coming to sell his/her wares in a particular kingdom to offer gifts to
the king, and seek his approval to sell his/her goods in that kingdom. This
customary practice
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Master
of Business Administration- MBA Semester 3
MF0013 – Internal Audit and Control
1.
Distinguish between secretarial
audit and cost
audit. Write the
advantages and disadvantages of
continuous and periodical audit.
Difference between secretarial
audit and cost audit
Cost audit
According to
Smith and Day, cost audit means ‘the detailed checking of the costing system,
techniques and accounts to verify their correctness and to ensure adherence to
the objective of cost accounting.’
Cost
accounting is primarily
aimed at ascertaining
the cost of
goods produced or service
provided by the
enterprises. Under the
amended Section 233B of
the Companies Act,
the Central Government
may, if it considers
necessary, direct that
an audit of
the cost records
kept by a company
under section 209(1)
(d) shall be
conducted by a
cost auditor within the meaning
of the Cost
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2. Write the characteristics of internal check
system. Explain the essentials of effective internal auditing.
Characteristics of internal check
system
The
characteristics of a good internal check system are:
1. Proper segregation of duties.
2. Automatic checking of a job.
3. Multiple recording of the same transaction.
4. Rotation of jobs.
5. Separation of custodial and recording
functions.
Essentials for Effective Internal
Auditing
• Appropriate
organisational status: The internal
auditor should ideally report to
the CEO and
the Board of
the company, and
should not be brought
under a Functional
Head like the
CFO. This is
regardless of whether internal
audit is entrusted to an outside audit firm or done by a department of the
company. The internal auditor should also be able to directly communicate with
the external auditor.
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3. The
audit firm follows
certain policies and
procedures. Explain the
quality control policies adopted
by an audit firm.
Audit firm
1. The
audit firm should
ensure that all
audits comply with
auditing standards, and accordingly the firm has to design and implement quality control
policies and procedures.
2. The quality
control policies to be adopted
by an audit
firm will usually include the following:
(a) Professional requirements: The firm’s
personnel have to follow the principles
of independence, objectivity,
confidentiality, integrity and professional behaviour.
(b)
Skills and competence: The firm is staffed only with personnel who
possess and are
able to maintain
the technical standards
and professional competence
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Q4.
Explain the basic principles of governing internal control.
Basic Principles Governing Internal Control
The basic principles governing internal control are as follows:
1. A proper system, preferably in writing, must be
implemented so that origination, recording and accounting of business
transactions take place in a standardised way.
2. The authority and responsibility of every official should
be fixed.
3. Accounting entries should not be allowed without a
supporting document.
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Q5.
Discuss the specific problems of Electronic Data Processing (EDP) relating to
internal control.
Specific Problems of Electronic Data Processing (EDP) relating to
Internal Control
The implementation of internal control in an EDP system, give rise
to the following problems:
(a) Separation
of duties: The responsibility for initiating transactions, recording
transactions and custody of assets, lies with separate individuals in a manual
system. This is a basic control necessity for any organisation. However, in a
computer system the traditional idea of separation of duties is not always
applicable. For example, a program may print a cheque for the amount owed to a
creditor after reconciling a vendor invoice against related documents. In this
case
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Q6.
Explain the factors for having the effective internal control system for a
bank.
An effective
internal control system for a bank should consider the following aspects:
1. Control
environment: Control environment
is the foundation
of an internal control system. It includes and reflects the factors that influence
the control consciousness of its people.
As per Auditing and Assurance Standard
6 issued by
ICAI (AAS6), control
environment is the
overall attitude, awareness and actions of directors and management
about the internal control system and its importance in the entity. Factors reflected in the control environment
include:
a) Organisational structure
of the entity
and means of
assigning authority and responsibility (including
segregation of duties
and supervisory functions)
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