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INTERNAL ASSIGNMENT
APPLICABLE FOR DECEMBER 2021 EXAMINATION
Sales Management
1. Design a Sales Process when
your organization is intending to enter Kenyan Market (10 Marks)
2. How would you set up a
sales organization (team) for a FMCG company setting up their operations and
having headquartered in Mumbai? (10 Marks)
3. Read the case ‘Levis India
offers – Jeans on EMI’ and respond to these questions. While answering
questions you are free to make reasonable assumptions. Please state them
clearly
In June 2009, apparel
manufacturer, Levis’ Strauss India Pvt Ltd offered to sell its well-known
Levi’s jeans and other Levi’s products on equated monthly installments (EMI)
payable through credit cards. Analysts viewed this as a bid by the company to
increase sales against the backdrop of the economic downturn. The company
planned to arrest its decline in sales through this innovative offer. Analysts
felt that the offer was the first such in the branded apparel industry. On the
launch of the scheme, Shumone Chatterjee. MD, Levi’s said – “it is for the
first time that a brand is offering this kind of deal in India. EMI has proven
good for several industries such as housing and white goods; therefore, I feel
it will make a significant difference to the branded apparel industry as well”.
The offer, launched as a pilot
program, in Bangalore, was valid only for consumers who purchased products
worth Rs 1500 and above. The consumers had to settle the bill in three
instalments. The EMI’s were zero percent interest. Levi’s had entered a tie-up
with ICICI Bank to offer this scheme. In return, the bank received service
charges from Levi’s for each transaction.
Levi’s is the Indian
subsidiary of US based Levi Strauss and Co. It sells denims jeans under the
brand Levi’s, a popular and aspirations brand of jeans in India. As of
September 2009, Levi’s operated through 230 stores and 500 points of sales in
nearly 200 cities.
By launching the offer, the
company planned to make the jeans affordable to consumers who aspired to own
the brand. Chatterjee added, “Many aspire to own a Levi’s but the price can be
a barrier. The EMI scheme makes it easier for the people to build the wardrobe
with a premium brand like ours. The company felt that it could make customers
spend more by easily making payments through installments. “the idea is to not
only achieve high conversion rate (walk-in’s conversion into spending) but also
enable our consumers to spend more and purchase higher-end denim through an
easy mode of payment. If the EMI scheme works well in Bangalore, then we can
unveil this nationally in a couple of months”.
The company received a good
response from customers. “ever since we introduced the ‘buy now, pay later’
scheme with interest of hidden charges in June, our sales have surged by 10-15
percent” said Mr. M Aaron, franchise manager, Levi’s. From June 2009 to August
2009, almost half the buyers who had an ICICI card used the EMI facility. “The
average value of their purchase was 50% higher than those who didn’t use the
EMI facility” added Chatterjee.
Encouraged by the response
received by the scheme, the company announced its plan to roll out the offer in
eight cities other than Bangalore by mid-September 2009. These cities were
Pune, Delhi, Ahmedabad, Chennai, Hyderabad, Kolkata, Mumbai and Chandigarh. The
success of the program, prompted Levi’s to enter into tie-ups with other
private banks such as HDFC Bank and Axis Bank. He criteria for usage of Axis
Bank credit cards was that the bill amount had to be Rs 5000 and above.
Some analysts felt that it was
logical for the Levi’s to offer the scheme through credit cards since there was
tremendous potential to be tapped in the Indian market, but they noted that the
number of credit card holders in India was less than that of developed
countries. According to a report by BankRate.com, only 28% of affluent Indians
have credit cards, a fraction of the average around the world. As of 2006,
credit cards accounted for just 1% of all purchased in India – one of the
lowest percentages in the world The offer launched by Levi’s received a mixed
response from Industry observers, customers and analysts. Customers appreciated
the scheme offered by Levi’s. According to Roger, a customer, “it helps the
consumers and the companies too. Recession has affected both the companies and
the consumers, so it’s a win-win situation for both of them,”. However, the
company maintained that the promotional technique was not a strategy to counter
the effects of the economic downturn. The company said that it was aimed to tap
the tremendous market potential offered by the organized retail market in
India. As of August 2009, the Indian organized retail market was just 4-5
percent, out of which 20% accounted for apparel and lifestyle, thus offering
scope for growth, according to Levi’s.
According to Sanjay Lalbhai,
CMD of Arvind Mills Ltd, “we have never offered such schemes and I don’t think
it has been tried anywhere in the world, unless you have a very loyal customer
base and are sure of their credit worthiness. It will be interesting to observe
how they are doing it”. On the other hand, some experts felt that though this
scheme might attract the masses to Levi’s initially, in the long run, it might
lose some premium customers since the branded products would be affordable to
most other sections of society.
a. Critically analyze Levi’s
offer to sell its Levi’s brand of jeans and other products on EMI (5 Marks)
b. What was the overall
objective of this plan? Do you think the company will succeed? (5 Marks)
Entrepreneurship and Venture Capital Management
1. Ruma is a final year hotel
management student, who is very much interested in starting her own business of
bakery. Home baking is the trend now so she wants to start from a small
business and then in future expand it. She is thinking of taking bank loan and
has approached you for advice. What would you advise her? (10 Marks)
2. Explain in detail business
canvas model for a business idea of your own. (10 Marks)
3. Arav and Maya are going to
start a business which is basically a PR firm which helps different
organizations to create brand image and communicate to public to attract
customers to those organization. a. What kind of innovation they should select
so that they can be one of the most chosen brands of all others? (5 Marks)
b. Do you think M/s XYZ can
expand their business by using the franchise model? What will you advice the
company? (5 Marks)
Corporate Finance
1. 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?
(10 Marks)
2. Assume that you plan to
take a housing loan with a tenor of 20 year. The loan has to be repaid in equal
monthly installments. Considering that the loan amount is Rs. 50 lakhs and the
interest rate on loan is 9% p.a., what would be the equated monthly installment
(EMI)? (10 Marks)
3. 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. (5 Marks)
b. Weighted Average Cost of
Capital (WACC). (5 Marks)
Strategic
Financial Management
1. ABC Limited is looking at expanding its business and wants to
invest in a new plant to boost its production capacity. The plant has a life of
three years. The details are as follows.
· The plant would depreciate in three years from the acquiring cost
of Rs. 4,20,000 to zero in three years. There would be no salvage value at the
end of three years. The depreciation would be on a straight line basis.
· The additional revenue from the plant would be ~ Rs. 6,00,000 in
year 1, Rs. 7,00,000 in year 2 and 3.
· The input cost (raw material) is expected to be ~ Rs. 3,00,000 for
year 1 and 2 and Rs. 4,00,000 in year 3.
Assuming a tax rate of 30% and a discount rate of 20%, you are
required to
1. Arrive at the expected
annual cash flows (after-tax)
2. Compute the net present
value of the investment and determine if the investment is financially viable? (10
Marks)
2. As an investor in the
equity market you become aware of investment opportunity in 3 corporates.
Assuming that the cost of equity is 8%, compute the fair value of X Limited, Y
Limited and Z Limited using the Dividend discount model.
a. Given the history of the
company, X Limited is expected to pay a uniform dividend of Rs. 5.00 per share.
b. Being in the IT Industry, Y
Limited is expected to pay a dividend of Rs. 4.00 per share and an increase of
5% year on year thereafter.
c. A pharmaceutical company, Z
Limited has been paying a dividend of Rs. 2.00 over for the last 3 years. The
company is expected to do extremely well and increase the dividend pay-out by
7% year on year. This year the dividend expected is Rs. 8.00.
Additionally, what is the
biggest lacuna in the Dividend Discount Model in valuing stocks? Give an
example to explain. (10 Marks)
3. As an Investment Banker
your client, LMN Limited is looking at a restructuring its business. You
extract the following data from the financials of the company.
Particulars Rs. Crs.
Equity capital (Face value Rs.
10) 1,000.00
Debentures (@ 12%) 400.00
Long Term unsecured loan
(@15%) 200.00
Total 1,600.00
The company has been paying a
dividend of 20% per annum (historically). The stock of LMN Limited is listed at
Rs. 20 on the NSE. You are required to
a. Compute the cost of Equity
capital. (5 Marks)
b. Weighted Average cost of
capital of LMN Limited. (5 Marks)
International
Banking & Foreign Exchange Management
1. 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? (10 Marks)
2. 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 (10 Marks)
3. The prevailing market rates
are as follows.
INR/USD = Rs. 77.00
Interest rate for a 6 month
loan in India = 12% per annum
Interest rate for a 6 month
loan in USA = 6% per annum
a. Explain the concept of
Interest Rate Parity. What will be the expected 6 -months forward rate for US
dollar in India? (5 Marks)
b. Compute the Forward
premium/discount of USD/INR in the Indian Forex Market? (5 Marks)
Insurance
& Risk Management
1. Vaishali is working as an
actuarial in an insurance company. Few of the new joiners have been appointed
as an underwriter in their department. Vaishali’s manager asks her to prepare a
short presentation on the various methods used by them in calculating the
premium rate. Help Vaishali to complete the assigned task. (10 Marks)
2. Mr. Manohar is married and
have two kids. He has recently undergone a surgery, which made him think about
the financial security for his dependents after his death. Hence, he decided to
meet his friend who was an insurance advisor to understand the life insurance
policy and the various benefits attached to with this policy .Explain Mr
.Manohar on life Insurance policy with its need. (10 Marks)
3. 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. (5 Marks)
b. Also explain the various
steps which will be involved in framing the retirement plan (5 Marks)
Treasury
Management in Banking
1. Historically, only larger
Banks had the strength of providing Treasury products & services. Now even
smaller banks are into it in a strong way. Enumerate and describe at least 5
purposes for which a Bank Treasury exists (10 Marks)
2. The organization structure
of a Bank’s Treasury unit involves designing of its operations across Front
office, Mid-office, and Back office. Describe each of these three operating
arms in terms of its nature, purpose / objectives, and the skills / qualifications
of the people employed in these 3 operating arms (10 Marks)
3. Assume that you are one of
the advisors to customers on Payment options.
a. There are multiple
Electronic Payment options available in India. What electronic payment option
will you recommend for the following
1. A Corporate customer (ABC
automobiles Limited) wants to pay dividend of varying amounts to its 10,000
shareholders. ABC Automobiles maintains a current with SBI, Kolkatta.
2. A Retail Bank customer (Mr
Gupta) wants to make monthly repayment (EMI of Rs 15,000 per month) towards
Housing Loan taken from Punjab National Bank, Pune whereas the customer has his
Savings Bank account with HSBC Bank, Mumbai
3. A customer, Mr Raju who has
a Savings Bank account with ‘Indian Bank’ Chennai wants to make a one-off
payment of Rs 10,000 urgently to Mr Alex who has a Savings Bank account with
Citi Bank Mumbai.
4. A corporate customer, ABC
automobiles Limited that has a Current account with ‘Bank of India’ Bangalore
wants to pay a sum of Rs 1 crore urgently to another company called XYZ
automobiles who has a current account with State Bank of India, New Delhi.
(5 Marks)
b. For each of the 4 items
listed above, as an advisor, what will be your high-level advice on the process
involved and the benefits to the payer and the beneficiary (5 Marks)
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