Institute of Chartered Financial Analysts of India (ICFAI) University 2006 Certification Finance International and Trade - II - Question Paper

236.45
455.49
700.02
742.01
7102.95

Lost sales (Rs.)
182.35
193.36
204.97
217.14
230.16
244.05

Net cash flow
-50.65
43.09
250.52
482.88
511.85
6858.90




Term loan repayment Schedule

Year
Principal o/s at beginning of the year
Interest
Principal Repayment
Total
Repayment

1
65.00
8.45
–
8.45

2
65.00
8.45
16.25
24.70

3
48.75
6.34
16.25
22.59

4
32.50
4.23
16.25
20.48

5
16.25
2.11
16.25
18.36




APV = -37.52 (516 – 38.50)
+ [-50.65 ´ PVIF(10, 1) + 43.09 ´ PVIF(10, 2) + 250.52 x PVIF(10, 3) + 482.88 ´ PVIF (10, 4) + 511.85´ PVIF (10, 5) + 6858.9 ´ PVIF (10, 6)]
+ [787.92 ´ PVIF(5, 1) + 773.43 ´ PVIF(5, 2) + 759.15 ´ PVIF (5, 3)
+ 745.08 ´ PVIF (5, 4) + 731.22 ´ PVIF (5, 5) + 717.78 ´ PVIF (5, 6)]
+ [0.115 ´ 1000 ´ 0.25 ´ PVIFA(7, 6)]
+ 37.52 [65 – {8.45 ´ PVIF(15, 1) + 24.70 ´ PVIF (15, 2) + 22.59 ´ PVIF (15, 3)
+ 20.48 ´PVIF(15, 4) + 18.36 ´ PVIF (15, 5)}]

= –17915.8 + [4697.24] + [787.92 ´ 0.8969 + 773.43 ´ 0.8044 + 759.15 ´ 0.7214 + 745.08 ´ 0.6469+ 731.22 ´ 0.5803 + 717.78 ´ 05204] + 5.95 + 37.52 [65 – 61.72]

= -17915.8 + 4697.24+ 3829.17+137.04+123.07 = -9129.28

As APV is negative, investment proposal should not be accepted.

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2. According to the Purchasing-Power Parity Principle (PPP). The price levels (and the modifications in these price levels) in various countries determine the exchange rates of these countries’ currencies. The basic tenet of this principle is that the exchange rates ranging from different currencies reflect the purchasing power of these currencies. This tenet is based on the legal regulations of 1 Price.

According to the legal regulations of 1 price, in equilibrium conditions, the price of a commodity has to be the identical across the world. If it were not true, arbitrageurs would drive the price towards equality by buying in the cheaper market and selling in the dearer one, i.e. by two-way arbitrage. For e.g., if the cost of steel in Germany (in dollar terms) were $300/tonne and in the US it were $350/tonne, arbitrageurs would begin buying steel in Germany to sell it in the US. This would increase the steel prices in Germany and decrease the US prices. This process will continue on till steel becomes equally priced in both the countries.

Earning:   Approval pending.