Finance Answers

Identify which party is playing what role in the following Letter of Credit transaction. ABC Limited wants to import raw material from Z123 Limited, a supplier in Germany who banks with T.R.V. Bank. The supplier insists that ABC Limited issue a Letter of Credit for the full value of the transaction. A tenure of 90 days is agreed upon. ABC Limited approaches N.O.P. Bank to issue a Letter of Credit. You are required to identify the steps involved in a Letter of Credit transaction. Also Identify which party is playing the role of

 Issuing Bank

 Beneficiary

 Applicant

 Beneficiary Bank

ABC Limited, an Indian Company has an export exposure of 10 million Yen. Yen is not directly quoted against the Rupee. The current spot rates are USD/INR = 41.79 and USD/JPY =129.75. It is estimated that Yen will depreciate to 144 level and Rupee to depreciate against Dollar to 43. The Forward rate for September 2020 USD/YEN = 137.35 and USD/INR 42.89. Given that the actual spot rate on 30 September 2020 was USD/YEN = 137.85 and USD/INR = 42.78, is the decision to take forward cover justified in hindsight?

You are seeking $1.5 million from a venture capitalist to finance the launch of your online financial search engine. You and the VC agree that your venture is currently worth$3 million, and when the company goes public in an IPO in five years, it is expected to have a market capitalization of $20 million. Given the company’s stage of development, the VC requires a 50 percent return on investment. 

What fraction of the firm will the VC receive in exchange for its $1.5 million investment in your company?

3. You are an industry analyst who specializes in an industry where the market inverse demand is P = 200 − 4Q. The external marginal cost of producing the product is MCExternal = 6Q, and the internal cost is MCInternal = 12Q.a. What is the socially efficient level of output? b. Given these costs and market demand, how much output would a competitive industry produce? c. Given these costs and market demand, how much output would a monopolist produce? d. Discuss actions the government might take to induce firms in this industry to produce the socially efficient level of output.

MCARTECH Pvt. Ltd. is considering two mutually exclusive capital investments. The project’s expected net cash flows are as follows:

Expected Cash Flows

Year Project A Project B

0 -500 -875

1 100 150

2 110 200

3 120 250

4 175 375

5 240 530

6 300 680

a. If you were told that each project’s cost of capital was 12%, which project should be selected using the NPV criteria?

b. What is the profitability index for each project if the cost of capital is 12%?

c. What is the regular payback period for these two projects?

LT India Ltd has the following capital structure, which it considers optimal: Debt 35% Equity shares 65% Total 100% Applicable tax rate for the company is 25%. Risk free rate of return is 6%, average equity market investment has expected rate of return of 12%. The company’s beta is 1.10. Debt will bear an interest rate of 9% p.a.

Calculate

a. component cost of debt and equity shares assuming that the company does not issue any additional equity shares. 

b. Weighted Average Cost of Capital (WACC). 

Shyam is working in a private investment firm. Unlike his parents who had a government job and had retirement benefits, shyam lacks on that front being in a private firm. Now he is worried about his retirement years.

a. As an insurance agent, discuss the various Risk, which Shyam will consider while planning his retirement plan.

b. Also explain the various steps which will be involved in framing the retirement plan.