NMIMS Semester 3 December 2025 Finance Assignments

Business valuation

Q1 Mr. Sharma has Rs.80,000 to invest for 3 years. He is choosing between two short term offers:

Instrument A (Bank Fixed Deposit): Quoted 5.2% p.a. nominal, compounded quarterly.

Instrument B (Company Deposit): Simple interest at 6% p.a. for 3 years.

Calculate the Effective Annual Rate (EAR) and maturity value for Instrument A after 3 years. Also compute the maturity value of the Rs.80,000 invested in Instrument B after 3 years. Comment which instrument gives a higher maturity amount for Mr. Sharma and why?

Q2 (A) ABC Pvt. Ltd., a family-owned business, is considering (a) selling part of the promoters’ stake to raise funds, (b) acquiring a small competitor, and (c) managing a shareholder’s exit. In which of these situations would a company valuation be necessary, and why is it important for each case?

Q2 (B) LMN Ltd. reported the following financial information for the year ending March 2024: Revenue of Rs.10,00,000, Cost of Goods Sold of Rs.6,50,000, Operating Expenses of Rs.2,00,000, and Interest & Taxes of Rs.50,000. Calculate Gross Profit Margin Net Profit Margin. Briefly interpret the results.

Capital market

1) Reeva Capital, a newly launched Indian fintech-driven brokerage firm, is planning to expand its services by catering to both retail and institutional investors. Their CTO wants to ensure smooth trade execution through the selection of appropriate trading platforms, order types, and mechanisms. As the Chief Market Strategist, you are tasked with drafting a strategy that outlines the application of market structure concepts to enhance trade efficiency and market access.

Based on this scenario, answer the following:

Question:

Discuss the role of different types of trading orders (Market, Limit, Stoploss) that Reeva Capital should support for clients, with examples of when each would be practically used. Evaluate whether Reeva Capital should act as a broker, dealer, or market maker in the Indian context. Justify with functions and regulatory implications.

How should Reeva Capital handle liquidity concerns, especially when catering to institutional investors? Explain using the concept of market depth and Indian trading platforms.

2 (A) Astra Capital, a registered stockbroking firm in India, recently onboarded a new institutional client from Singapore. During the client onboarding process, Astra’s compliance officer notices that the client is indirectly linked to a promoter group of a listed Indian company. Meanwhile, one of Astra’s analysts accidentally shares a draft research report about that company before it is officially published. As the Compliance Head of Astra Capital, you are required to evaluate the regulatory and ethical risks involved and suggest a compliant course of action under Indian capital market regulations.

Question:

Identify and explain two key regulatory and ethical concerns in this scenario. How should Astra Capital address these concerns in accordance with Indian regulatory frameworks and ethical investment practices?

2 (B) Ritika, a young fund manager at a boutique investment firm in Mumbai, is designing a new mutual fund scheme for moderately risk-tolerant investors. She selects 6 Indian stocks from various sectors (banking, IT, FMCG, pharma, infra, and renewable energy). Her objective is to maximize returns while reducing overall risk through diversification.

However, a senior analyst questions whether the selected portfolio truly follows Modern Portfolio Theory (MPT), especially in terms of risk-return tradeoff and efficient frontier alignment.

Question:

Based on the above case, explain how Ritika can apply Modern Portfolio Theory to construct an efficient portfolio. In your answer, mention:

a) How diversification reduces risk

b) How expected return and standard deviation help in evaluating portfolios

c) What role the efficient frontier plays in this decision-making

Corporate Finance

Q1 An Indian FMCG company is experiencing rapid sales growth but is facing frequent cash flow shortages, leading to delayed supplier payments and missed opportunities for bulk inventory discounts. The CEO is concerned that poor liquidity management could undermine the company’s reputation and growth prospects. The finance manager must analyze the situation and implement effective working capital management strategies to optimize cash flow and maintain smooth operations. How should the finance manager apply working capital management principles to resolve the company’s liquidity challenges, ensuring operational efficiency and the ability to capitalize on new business opportunities?

Q2 (A) A perpetuity pays Rs.25,000 at the end of each year. However, due to inflation, the payment increases by 4% annually. The appropriate discount rate is 10%. After 15 years, the perpetuity is expected to be replaced by a new instrument that pays a fixed Rs.60,000 per year in perpetuity, discounted at 8%. Calculate the present value of this entire cash flow stream as of today, considering the change in payment structure and discount rates after year 15.

Q2 (B) A company issues Rs.50,00,000 in 8% redeemable preference shares at a 5% premium, redeemable at par after 6 years. Annual dividend is paid on face value. The issue expenses are 2% of the face value. Calculate the cost of preference shares, considering the effect of issue expenses and premium, and interpret how this cost would impact the company’s overall cost of capital if preference shares constitute 20% of the capital structure. Show all intermediate steps.

Financial derivatives

Q1 Rohan is an investor interested in Global Tech Ltd., which is currently trading at Rs.1,800 per share. He is considering two options contracts:

A call option with a strike price of Rs.1,750 and a premium of Rs.120 per share.

A put option with a strike price of Rs.1,850 and a premium of Rs.100 per share.

Calculate the intrinsic value, time value, and profit or loss for both the call and put options if the stock price rises to Rs.1,900 at expiry and if the stock price remains at Rs.1,800 at expiry Also comment what should be the minimum stock price at expiry at which Rohan will make a profit on the call option, and the maximum stock price at expiry at which he will make a profit on the put option.

Q2 (A) Priya, an investor, buys 50 futures contracts of ABC Ltd. at a futures price of Rs.2,000 per share, with each contract representing 10 shares. The exchange requires daily mark-to-market (MTM) settlement. Over the next three days, the closing futures prices are Rs.2,020 on Day 1, Rs.2,010 on Day 2, and Rs.1,990 on Day 3. Calculate Priya’s daily profit or loss based on the change in futures prices each day. Also determine the total net gain or loss for Priya after the three days of MTM settlement.

Q2 (B) ABC Ltd., an Indian exporter, is expecting to receive USD 100,000 from a client in the United States in three months. The current exchange rate is Rs.82/USD, but the company is concerned that the rupee may strengthen by the time the payment is received, reducing the rupee value of the payment. Explain how ABC Ltd. can use a forward contract to hedge against this exchange rate risk.

Research methodology

1. A consulting firm is preparing to launch a research project on the impact of remote work on employee productivity. The project lead, inspired by recent client experiences, is eager to proceed quickly and has drafted a hypothesis based on anecdotal evidence. However, the team is concerned about the risk of duplicating existing studies and missing key variables such as digital fatigue and communication barriers. They recognize the need to conduct a thorough literature review but are unsure how to structure it to inform their research objectives and methodology. Based on the scenario, how should the research team apply the principles of a critical literature review to ensure their study on remote work and employee productivity is both original and relevant, while avoiding duplication of existing research?

2 (A) A management intern is tasked with studying customer behavior at a busy café in Bangalore. She considers two options: observing customers without their knowledge to capture natural behavior (concealed observation), or informing them in advance and obtaining consent (unconcealed observation). The café owner is open to either method but is concerned about both data authenticity and ethical standards. Evaluate the ethical and methodological implications of choosing concealed (covert) observation over unconcealed (overt) observation in a study of customer behavior in a public café. Weigh the potential for authentic data against the ethical responsibilities of the researcher, and justify which approach would be more appropriate in this context.

2 (B) A research team is analyzing customer satisfaction survey data collected using a 5- point Likert scale. For ease of analysis, they consider treating the ordinal data as interval data to calculate means and run parametric tests. Some team members question whether this is methodologically sound and worry about the impact on the study’s conclusions. Evaluate the implications of treating ordinal data from a Likert scale as interval data in statistical analysis. Should the research team proceed with this approach, or are there risks to the validity of their findings? Justify your recommendation with reference to measurement theory.

Strategic cost management

Q1 A manufacturing company produces both high-volume and low-volume products. Historically, it has used traditional costing, allocating overheads based on direct labour hours. Recently, management discovered that high-volume products were being over-costed, while low-volume products were under-costed, leading to poor pricing decisions and declining profits. The company is considering implementing Activity-Based Costing (ABC) to gain a more accurate understanding of product costs and to improve its competitive position in the market. Based on the scenario, how should the management of a multi-product manufacturing company apply the steps of Activity-Based Costing (ABC) to address cost distortions caused by traditional costing, and what specific actions should be taken to ensure more accurate product costing and improved profitability?

Q2 (A) Acme Electronics, a leading UK-based consumer electronics manufacturer, is experiencing shrinking profit margins due to rising raw material costs and intense competition. The management is debating whether to continue manufacturing key components in-house, which ensures quality and shorter lead times but is becoming increasingly expensive, or to outsource production to lower-cost international suppliers, which could reduce costs but may compromise quality and introduce logistical complexities. The board is divided, with some members prioritizing immediate cost savings and others concerned about long-term brand reputation and operational risks. Critically evaluate the decision faced by Acme Electronics regarding whether to continue in-house manufacturing of components or outsource production to international suppliers. Considering the trade-offs between cost savings, quality control, and logistical challenges, which option would you recommend and why? Justify your answer by weighing the long-term strategic implications for profitability and competitiveness.

Q2 (B) A company operates at 60% of its total capacity, producing 12,000 units per month. The fixed cost is Rs.3,00,000 per month, and the variable cost per unit is Rs.100. The selling price per unit is Rs.180. The management is considering increasing production to 90% capacity, but this will require an additional fixed cost of Rs.1,20,000 per month and will reduce the variable cost per unit by 10% due to economies of scale. However, to sell the additional output, the company must offer a 5% discount on the selling price for all units. Should the company increase production to 90% capacity? Calculate the change in monthly profit if the proposal is implemented.