Master of Business Administration (MBA) Examination

III Semester

(Financial Systems and Services)

Time : 3 Hours]                                                                                                 [Max. Marks : 80

Section A

1 .        "There are many institutions which facilitate the capital market process in addition to banks." Identify these institutions and discuss the role played by them.

2.         "Mutual funds route offer several important benefits to the small investor." What are these benefits? Briefly discuss.

3.         Write short notes on any four:

(a)        Settlement Guarantee

(b)        Debt instruments

(c)        Book building

(d)       Leasing vs. Hire purchase

(e)        E commerce

4.         What is a Lease? What are the merits and limitations of Leasing?

5.         What do you understand by IFRS? Explain its various issues.

Section B

Mr. X, the Finance Manager of ABC Ltd, had almost decided to finance the purchase of Rs. 20 lakh in new computer equipment with 16 per cent. long-term debt when he was contacted by First Leasing Company Ltd. The manager of the leasing company tried to convince Mr. X that leasing the equipment would be more beneficial to ABC Ltd.

If ABC borrowed, the firm would be required to pay 16 per cent interest on the borrowed funds plus an annual sinking fund payment of Rs. 2,00,000. The equipment has an expected life of 10 years, with an anticipated salvage value of Rs. 4,00,000. The firm uses the straight line method of depreciation, and is in the 50 per cent tax bracket.

The leasing company is willing to lease the equipment for Rs. 3,80,000 per year. Further, it was stressed that the lease payments were fully tax deductible, while debt repayment was not:

Mr. X seeks your advice before committing to lease the computer equipment. What advise would you, as a financial consultant, give to the finance manager of ABC Ltd.?