PAPER –2 : MANAGEMENT ACCOUNTING AND FINANCIAL ANALYSIS
QUESTIONS
Swap
1.
Suppose you are a treasurer of XYZ plc in the UK. XYZ have two overseas subsidiaries,
one based in Amsterdam and one in Switzerland. The Dutch subsidiary has surplus
Euros in the amount of 7,25,000 which it does not need for the next three months but
which will be needed at the end of that period (91 days). The Swiss subsidiary has a
surplus of Swiss Francs in the amount of 9 ,98,077 that, again, it will need on day 91.
The XYZ plc in UK has a net balance of £75,000 that is not needed for the foreseeable
future.
Given the rates below, what is the advantage of swapping Euros and Swiss Francs into
Sterling?
Spot Rate €/£
0.6858- 0.6869
91 day Pts
0.0037 0.0040
Spot Rate £/CHF 2.3295- 2.3326
91 day Pts
0.0242 0.0228
Interest rates for the Deposits
Amount of Currency
0 – 100,000
100,001 – 500,000
500,001 – 1,000,000
Over 1,000,000
91 day Interest Rate % pa
£
1
2
4
5.375
€
¼
1½
2
3
CHF
0
¼
½
1
Merger and Acquisition
2.
Cool-cool Ltd.. makes thermal clothing for winter sports and outdoor work, and is
considering acquiring Sking Shell Ltd. which manufactures and sells ski clothing. Sking
Shell is about one quarter of Frozen's size and manufactures its entire prod uct line in a
small rented factory on a mountaintop in Manali. It costs about Rs.10,00,000 a year in
overhead to operate in the factory. Cool -cool Ltd. produces its output in a less popular in
North but more popular north -east locations. Its factory has at least 50% excess
capacity. Cool-cool's plan is to acquire Sking Shell, and combine production operations
in its north -eastern factory, but otherwise run the companies separately.
Sking Shell's beta is 2.0, Treasury bills currently yield 5% and the N ifty Index is yielding
9%. The corpoarte income tax rate for both firms is 40%. Because Sking Shell will no
longer be maintaining its own production facilities, it can be assumed that only a minimal
amount of cash will have to...