3(b) You have been given the following information about Sweccha Ltd:

Sweccha Ltd Market

Year Average Dividend per Average Dividend Return on
Share Price share Index Yield% Govt. bond %
2017 460 30 4060 5 5.5
2018 497 33 4320 6.5 5.5
2019 523 38 4592 4,5 5.5
2020 556 43 4780 6 5.5
2021 589 50 4968 5.5 5.5

(i) Compute the Beta value of the company as at the end of year 2021.
(ii) What is your Observation?

3(b) Computation of Beta Value

Calculation of Returns
Returns =D1 + (P1 –P0)/P0 x 100

Year Returns
2017-2018 33 + (497 - 460) /460 x 100 =15.22%
2018-2019 38+(523 - 497 )/ 497 x 100= 12.88%
2019-2020 43 + (556-523)/ 523 x 100=14.53%
2020-2021 50 + (589-556)/ 556 x 100=14.93%

Calculation of Returns from market Index

Year % of Index Dividend Yield% Total Return%

Appreciation
2017-18 (4320-4060)/ 4060 x 6.5% 12.9%
100 =6.40%
2018-19 (4592 -4320)/ 4320 4.5% 10.8%
x 100 = 6.30%
2019-20 (4780 - 4592)/4592 x 6% 10.1%
100 = 4.10%
2020-21 (4968 - 4780)/4780 x 5.5% 9.43%
100 = 3.93%
Computation of Beta

Year Sweecha Ltd Market Index XY Y2

(X) (Y)
2017-18 15.22% 12.9% 196.34 166.41
2018-19 12.88% 10.8% 139.10 116.64
2019-20 14.53% 10.1% 146.75 102.01
2020-21 14.93% 9.43% 140.79 88.92
Total 57.56% 43.23% 622.98 473.98

Average Return of Sweecha Ltd. = 57.56/ 4 =14.39%

Average Market Return =43.23/ 4= 10.81%
Beta(b) = EXY-nXY/EY2 – n(Y)2 = 622.98-4 x 14.39 x 10.81/473.98 -4(10.81)2 = 0.115
(iii) Observation
 Expected Return (%) Actual Return (%) Action
2017- 18 5.5%+ 0.115(12.9% 15.22% Buy
- 5.5%) = 6.35%
2018-19 5.5%+ 0.115(10.8% 12.88% Buy
- 5.5%) = 6.11%
2019-20 5.5%+ 0.115(10.1% 14.53% Buy
- 5.5%) = 6.029%
2020-21 5.5%+ 0.115(9.43% - 14.93% Buy
5.5%) = 5.95%

4(a) Following information is available pertaining to ABC Ltd. which is expected to grow at a
higher rate for 3 years after which growth rate will stabilize at a lower level.

Base year information is -

Revenues EBIT (After Depreciation) Capital Expenditure Depreciation

Rs 1,000 Cr. Rs 150 Cr. Rs 140 Cr. Rs 100 Cr.

Information for high growth and stable growth period are as follows:

Particulars High Growth Stable Growth

Growth in Revenue & EBIT 20% 10%

Growth in Capital Expenditure 20% Capital Expenditure are offset
and Depreciation by Depreciation
Risk free rate 10% 9%
Equity Beta 1.15 1.00
Market Risk Premium 6% 5%
Pre Tax cost of Debt 13% 12.86%
Debt Equity Ratio 1:1 2:3
Working capital is 25% of Revenue for all time.
Corporate Tax Rate is 30%.
You are requested to find out the value of ABC Ltd.

4. (a) High growth phase :

ke = 0.10 + 1.15 x 0.06 = 0.169 or 16.9%.
ky = 0.13 x (1-0.3) = 0.091 or 9.1%.
Cost of capital = 0.5 x 0.169 + 0.5 x 0.091 = 0.13 or 13%.
Stable growth phase :
ke =0.09+1.0 x 0.05 =0.14 or 14%.
ky = 0.1286 x (1 - 0.3) = 0.09 or 9%.
Cost of capital = 0.6 x 0.14 +0.4 x 0.09 = 0.12 or 12%.
Determination of forecasted Free Cash Flow of the Firm (FCFF)
 (Rs in crores)

Yr. 0 Yr.1 Yr. 2 Yr. 3 Terminal

Year
Revenue 1000 1200 1440 1728 1900.8
EBIT 150 180 216 259.2 285.12
EAT 105 126 151.2 181.44 199.58
Capital 140 168 201.6 241.92 266.11
Expenditure
Less
Depreciation
100.00 120.00 144.00 172.80 190.08
40 48 57.6 69.12 76.03
△ Working
50 60 72 43.2
Capital

Free Cash 28 33.6 40.32 80.352

Flow (FCF)

Alternatively, it can also be computed as follows:

(Rs in crores)

Yr. 0 Yr.1 Yr.2 Yr.3 Terminal

Year
Revenue 1000 1200 1440 1728 1900.8
EBIT 150 180 216 259.2 285.12
EAT 105 126 151.2 181.44 199.58
Add: 100 120 144 172.8 190.08
Depreciation
205 246 295.2 354.24 389.66
Less: Capital 140 168 201.6 241.92 266.11
Exp.
△ WC 50 60 72 43.2
28 33.6 40.32 80.35

Present Value (PV) of FCFF during the explicit forecast period is:

FCFF (Rs in crores) PVF @ 13% PV (Rs in crores)

28.00 0.885 24.78
33.6 0.783 26.31
40.32 0.693 27.942

Rs 79.032

Terminal Value of Cash Flow

80.35/0.12-0.10 =Rs 4017.5Crores
PV of the terminal, value is:
Rs 4017.5Crores x 1/(1.13)3 =Rs 18,766.00Crores x 0.693 = Rs 2784.12Crores
 The value of the firm is :
Rs 79.032 Crores + Rs 2784.13 Crores = 2863.162 Crores

5(b) Closing Values of NIFTY Index from 3 to 12" day of the month of January 2022 were as
follows:

Days Date Closing Values of NIFTY Index

1 03/01/2022 17626
2 04/01/2022 17805
3 05/01/2022 17925
4 06/01/2022 17746
5 07/01/2022 17813
6 10/01/2022 18003
7 11/01/2022 18056
8 12/01/2022 18212

The simple moving average of NIFTY Index for the month of December 2021 was 17174.
You are required to calculate:
(i) The value of exponent for 15 days EMA.
(ii) The exponential moving average (EMA) of NIFTY during the above period. (Calculations
to be done up to 2 decimals only)
(iii) Analyse the buy & sell signal on the basis of your calculations

5(b)
(i) Value of exponent for 15 days EMA:
2/(n+1)
2/(15+1)=.125

(ii)

Date NIFTY 2 EMA for 3 1-2 4 5

EMA 3 x 0.062 EMA 2+4
Previous day
3 17626 15000 (478) (29.636) 14970.364
4 17805 14970.364 (45.364) (2.812) 14967.55
5 17925 14967.55 254.45 15.776 14983.32
6 17746 14983.32 1016.68 63.034 15046.354
7 17813 15046.354 1353.646 83.926 15130.28
10 18003 15130.28 1869.72 115.922 15246.202
11 18056 15246.202 2753.798 170.735 15416.937
12 18212
 Conclusion — The market is bullish. The market is likely to remain bullish for short term
to medium term if other factors remain the same. On the basis of this indicator (EMA) the
investors/brokers can take long position.
6(a) Calculate the Covariance & Correlation Coefficient of the two securities, from the
historical rates of return over the past 10 years.

Years 1 2 3 4 5 6 7 8 9 10
Security 15 10 12 8 18 16 20 24 16 14
1 (Return
%)
Security 24 20 18 14 22 26 12 28 16 15
2 (Return
%)

(b) MPD Lid. Issues a Rs 50 Million Floating Rate Loan on July 1, 2018 with resetting of
coupon rate every 6 Months equal to LIBOR +50 bps. MPD is interested in an Interest rate
Collar Strategy of selling a Floor and buying a cap.
MPD buys the 3 years cap and sell 3 years Floor as per the following details on July 1, 2018:

Principal Amount Rs 50 Million

Strike Rate 5% for Floor & 8% for Cap
Reference Rate 6 months LIBOR
Premium NIL, since premium paid for cap =premium
received for Floor

The Reset dates & Interest rates p.a. on that dates are:

Reset Date 31/12/2018 30/06/2019 31/12/2019 30/06/2020 31/12/2020 30/06/2021

LIBOR (%) 7.00 8.00 6.00 4.75 4.25 5.25

Using the above data, you are required to determine:

(i) Effective Interest paid out at each six reset dates, (Round off to the nearest rupee)
(ii) Average overall effective rate of interest p.a. (round off to 2 decimals)

6(a)

(b) The pay-off of each leg shall be computed as follows:

Cap Receipt
Max {0, [Notional principal x (LIBOR on Reset date - Cap Strike Rate) x Number of days in
the settlement period/365

Floor Pay-off
Max {0, [Notional principal x (Floor Strike Rate - LIBOR on Reset date) x Number of days in
the settlement period/365}

Statement showing effective interest on each re-set date

Reset LIBOR(%) Days Interest Payment Cap Floor Effective

Date ($)LIBOR+0.50% Receipts($) Pay-off Interest
($)
31-12- 7.00 184 1764384 0 0 3,27,671
2018
30-06- 8.00 181 1983562 24,795 0 3,71,917
2019
31-12- 6.00 184 1512329 0 0 2,77,260
2019
30-06- 4.75 182 1246575 0 0 1,98,356
2020
31-12- 4.25 184 1,89,041 0 12,603 2,01,644
2020
30-06- 5.25 181 2,36 849 0 0 2,36,849
2021
Total 1096 16,26,094

(b) Average Annual Effective Interest Rate shall be computed as follows:

16,26,094 365/1,00,00,000 x 365/1096 x 100 = 5.42%