PROGRAM - MBA
SUBJECT CODE & NAME - MF0010 & SECURITY
ANALYSIS AND PORTFOLIO MANAGEMENT
1. Financial markets bring the
providers and users in direct contact without any intermediary. Financial
markets permits the businesses and governments to raise the funds needed by
sale of securities. Describe the money market/capital market – features and its
composition.
A. Money market- features and composition
The money
market facilitates interaction
between supply and
demand of short-term funds,
with maturity of
a year or
less. Most money
market transactions are made
in marketable securities
which are short-term
debt instruments such as T-bills and commercial paper.
Money (currency)
is not actually
traded in the
money markets. The securities traded in the money market are
short-term with high liquidity and low-risk. They are called ‘money
equivalents’.
Money
market provides investors a place for parking surplus funds for short periods of
time. It also
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2. Risk is the likelihood that
your investment will either earn money or lose money. Explain the factors that affect
risk.
Mr. Rahul invests in equity shares of Wipro. Its anticipated returns and
associated probabilities are given below:
|
Return
|
-15
|
-10
|
5
|
10
|
15
|
20
|
30
|
|
Probability
|
0.05
|
0.10
|
0.15
|
0.25
|
0.30
|
0.10
|
0.05
|
You are required to calculate the expected ROR and risk in terms of
standard deviation.
A. Explanation of all the 4
factors that affect risk
The common risk factors
are:
Business risk: As
a security holder
you get dividends,
interest or principal (on
maturity in case of securities like bonds) from the firm. But there is a
possibility that the firm may not be able to pay you due to poor financial performance.
This possibility is
termed as business
risk. The poor financial
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3. Explain the business cycle and
leading coincidental & lagging indicators. Analyse the issues in
fundamental analysis.
A Explanation of business cycle-leading
coincidental and lagging indicators
Business cycle and
leading coincidental and lagging indicators
All economies
experience recurrent periods
of expansion and
contraction. This recurring pattern
of recession and
recovery is called
business cycle. The business
cycle consists of
expansionary and recessionary
periods. When business activity
reaches a high
point, it peaks. A
low point on the
cycle is
called trough. Troughs
represent the end
of a recession
and the beginning of an
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4. Discuss the implications of EMH
for security analysis and portfolio management.
A. Implications for active and
passive investment
Proponents of EMH often
advocate passive as opposed to active investment strategies. Active management
is the art of stock-picking and market-timing. The policy
of passive investors is
to buy and
hold a broad-based
market index. Passive investors
spend neither on
market research, on
frequent purchase nor on sale of shares.
The
efficient market debate plays an important role in the decision between active and
passive investing. Active
managers argue that
less efficient markets provide
the opportunity for
skilful
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5. Explain about the interest rate
risk and the two components in it.
An investor is considering the purchase of a share of XYZ Ltd. If his
required rate of return is 10%, the year-end expected dividend is Rs. 5 and
year-end price is expected to be Rs. 24, Compute the value of the share.
Interest
rate risk: The
cash flows from
a bond (coupon
payments and principal repayment) remain fixed though interest rate keeps changing. As a result, the value of a bond fluctuates. Thus
interest rate risk arises because the changes in the market interest rates
affect the value of the bond. The return
on a bond comes from coupons payments, the
interest earned from re-investing
coupons (interest on interest), and capital gains. Since coupon payments are
fixed, a change in the interest rates
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6. Elucidate the risk and returns of foreign investing. Analyse
international listing.
A. Explanation of all the points
in risks and returns from foreign investing
International investing
provides superior returns adjusted for risk. Allocating some portion of one's portfolio to foreign
assets provides better risk-cover than a
portfolio of only
domestic assets. International
equities also offer access to
a broader spectrum
of economies and
opportunities that can provide for further diversification benefits.
Some of the
best performing companies
in the world
like General Electric,
Exxon Mobil and
Microsoft have shares that are
listed on overseas stock markets. If an investor wants to profit from the
growth of large global companies, he would have to invest internationally.
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SUBJECT CODE & NAME - MF0011 & MERGERS &
ACQUISITIONS
1. Give the meaning of advantages
and disadvantages of mergers and acquisitions. Explain the types of Mergers and
Acquisitions.
A. Advantages and disadvantages of mergers and acquisitions
1. Advantages of mergers and acquisitions
Mergers and
acquisitions are strategic decisions leading to the maximising of company's
growth by enhancing its production and sales. They provide many benefits which
are not available in combinations like joint ventures or other strategic
alliances. The benefits of M & A are:
1. From
the standpoint of
shareholders: Shareholders may
gain from mergers through
economies of scale,
which helps in
lowering of cost.This
results in increased profits,
better investment
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2 Write a note on the five-stage
model of mergers and acquisitions.
A. Explanation on five stage model of mergers and acquisitions
The Five-Stage Model
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.
The five stages
comprise:
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3 What do you understand by
creating synergy? Give the prerequisites for the creation of synergy. Describe
the important forces contributing to mergers and acquisitions.
A. Introduction of creating synergy
The
creation of synergy is not automatic. Synergy requires a great deal of work on
the part of managers at the corporate and business levels. Creation of synergy
does not require
only the material
resources of the
two companies. It demands effective integration of the
combined unit’s human resource, physical assets and operations. The activities that create synergy
include combining similar processes,
coordinating business units
sharing common resources, and
resolving conflicts among
business units. Managers often
underestimate the magnitude
of problems that
arise in integration
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4 Demerger results in the transfer
by a company of one or more of its undertakings to another company. Give the
meaning of demerger. What are the characteristics of demerger? Explain the
structure of demerger with an example.
A. Introduction 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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5. Explain Employee Stock
Ownership Plans (ESOP). Write down the rules of ESOP and types of ESOP.
A Introduction of 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
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6. Explain the factors in
Post-merger Integration. Write down the five rules of Integration Process.
A Factors in Post-merger
Integration
Factors in Post-merger Integration
Some important factors
that can decide the success or failure of a merger or acquisition are:
Due diligence:
Thorough due diligence involves
comprehensive analysis of the
financial position, management
capabilities, physical assets
and intangible assets of the target company. However, it can result in
failure of the project if done badly.
Financing: Manageable
debt levels should be ensured.
Complementary resources:
Ideal conditions for a merger
are when the ‘primary resources of the acquiring and
target firms are somewhat different, yet simultaneously supportive of one
another.’
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PROGRAM -
MBA
SUBJECT CODE & NAME - MF0012 &
TAXATION MANAGEMENT
1. Explain the concept of tax planning and the factors to be considered
in tax planning. Give the difference between tax planning and tax evasion.
A. Concept of tax planning
Under the different
direct and indirect tax laws, a taxpayer is entitled to plan his taxes in such
a manner that the tax incidence in relation to his income is minimal i.e., his net income after tax is
the maximum.
Tax
planning involves a study of the exemptions, rebates, deductions and
reliefs given under
the direct and
indirect tax laws
for specific business decisions in the case of business persons,
and
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2. Explain the process of tax
payment.
A Explanation of whole process of
tax payment through:
Individuals
A very
large proportion of
individual taxpayers are
salary earners. The employers
of salaried individuals
have the responsibility to
deduct tax at source from the employees before paying
their salaries. Employees are usually asked to furnish details of tax-related
matters such as rent paid
by them, tax-saving
investments, expenses incurred
against reimbursements,
other incomes earned
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3 Write short notes on:
Capital gain
Capital gains
are chargeable to
income tax if
the following conditions
are satisfied:
a) There is a capital asset.
b) Assessee transfers the capital asset.
c) Transfer of capital asset has taken place
during the previous year.
d) There is gain or loss on account of the
transfer.
Cost of acquisition
Cost of
acquisition: The cost of acquisition of an asset would normally be taken to be the price at which the asset
was acquired by the assessee. This includes litigation expenses incurred for
having the shares
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4. Explain the computations of Tax
in two aspects given below:
Tax provision for Computation of Total income of firms
Computation of partnership firms’ book profit.
A. Steps to be explained for the
computation of total income of firms
Total income of the
partnership firm is computed under all the pertinent heads of income. While
computing income under the head
‘profits and gains
of business or
profession’, deduction is
allowable for interest
(under Section 36) and remuneration (under Section 37) is payable to the
partners.
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5. Explain the service tax law in
India. Give the concept of negative list.
A Introduction of 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.
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6. Identify and explain the major
considerations in capital structure planning. Explain two approaches in
dividend policy and factors affecting dividend decisions. A
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
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SUBJECT CODE & NAME - MF0013 & INTERNAL AUDIT
& CONTROL
1. Define and explain the term
auditing. “Personal qualities of an auditor are important for the successful
conduct of audit”. Comment
A. Definition of auditing
Auditing
is as old as accounting. The word ‘audit’ has been derived from the Latin word
‘audire’ meaning ‘to hear’, ‘listen’ or ‘give credence to’. In ancient times
the person authorized to check the accounts of an estate
did the job by hearing the
business records from the record-keepers. There is historical evidence that
household accounts of early rulers were kept by at least two persons, independently
of one another, to keep a
check on mistakes and misappropriations. In the Mauryan, Greek
and Roman
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2 Write the key objectives of a
good internal audit system. Narrate the points of dissimilarities between external
audit and internal audit.
A. Key objectives of a good
internal audit system
The key objectives of a
good internal audit system are:
1. Evaluation
of accounting controls:
Ensuring that the
checks and balances in
the accounting processes
are effective and
provide the required accounting
controls.
2. Compliance with policies and procedures: Verifying
compliance with the policies and
procedures
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3. Give the role of internal
auditor in the Company’s Management. List down the duties of auditor Under
Section 581ZG.
A. Role of internal auditor in
the company’s management
The specific
contributions that an internal auditor can make include:
1. Review of internal control systems: The
internal auditor should review the
internal control systems
of the organisation.
He should determine whether the existing control
systems are appropriate and commensurate with
the objectives, size, etc. of the organisation. For example a small company cannot
afford a separate
credit control department
and so it will
need strong controls
in the
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4. The effectiveness of the
internal control system can be ensured if the important aspects of the
company’s operations are kept in mind. Explain the characteristics of an
effective internal control system. Write the elements of internal control.
A. Characteristics of an
effective internal control system
The effectiveness
of the internal
control system can
be ensured if the
following aspects of the
company’s operations are
kept in mind and
done properly:
1. How
the organisation structure
is planned: For
strong internal controls, the
organisation structure should have the following features:
·
Freedom of
operation at every
level of the
hierarchy, subject to overall
company guidelines and
achievement of company’s
overall objectives.
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5. Describe general EDP controls. Explain the appraisal of accounting
system and related internal control.
A. General EDP controls
(a) Organisational and
operational controls
·
relate to plan of
the organisation and operation of EDP activities;
·
emphasise segregation
of EDP department
from source and
user departments; and
·
also lays
stress on segregation of
functions within the
EDP department.
(b) System development and documentation control
·
are designed to
monitor, design, test and document the system and programmes
constituting each application;
·
include:
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·
6. Explain the internal control
systems in insurance companies. Write down about the reporting internal control
weaknesses.
A. Internal control systems in
insurance companies
Internal control system
in banks
Different factors
influence the internal control structure of any organisation: size, complexity
and risk profile of its operations. In
this regard 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
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