Section-A
Question1) How do venture capital investors value their investment in the company? What are some of the factors which can influence this valuation?
Question2) Compare following four methods of raising finance with the help of suitable example:
(i) Public Issue
(ii) Rights Issue
(iii) Private Placement
(iv) Preferential Allotment
Question3) Write brief notes on Global Depository Receipts
Question4) Describe the types of project risk and the measures of risk.
Section-B
The government is considering the multi-purpose river valley project that will involve construction of a dam, a reservoir, a power house, and several irrigation canals. The project will supply water for irrigation, generate electricity and provide a measure of protection against floods. The following information has been gathered by the project control board.
The project would need the following during the construction stage:
1) Indigenous power equipment costing Rs. 200 million.
2) Imported power equipment costing $10 million.
3) 20,000 tonnes of steel produced indigenously and made4 available to project at Rs. 800 a tonne.
4) 3, 50,000 tonnes of cement produced indigenously and made available to project at Rs. 800 per tonne.
5) Other construction materials (sand, bricks etc costing Rs. 100 million.
6) 25 million mandays of unskilled labour for which project control board has decided to pay daily wage rate of Rs. 10.
7) Skilled labour costing Rs. 100 million.
Once commissioned the operating and maintenance cost of the project will be Rs. 35 million per year.
The annual benefit expected from the project will be as follows:
1) 3, 00,000 acres of land would be irrigated.
2) 120 million units of electricity would be generated for domestic use.
3) Flood damages to the extent of 10 million Rs. would be saved annually.
The following extra information is available:
1) Power equipment produced indigenously is a tradable item whose FOB value is 4 15 million.
2) A gift of $ 10 million available from a foreign agency could be used for acquiring imported equipment. This gift though, is not project-tied. Therefore, if it is not assigned to the project, it could be used for some other purpose.
3) The Shadow price per dollar is Rs. 12, though the official price is Rs. 10.
4) Steel is a tradable item whose FOB value is $ 400 per tonne.
5) Cement is not a tradable item. One-half of the cement needed for the project would come from extra domestic production which has a cost of Rs. 700 per tonne, one-half of the cement needed for the project would come from diversion from other consumers who are willing to pay on average, Rs. 1,200 per tonne.
6) Other construction materials are non-tradable items. The needs of the project would be met by way of extra production. The cost of this production would be Rs. 80 million.
7) shadow price of unskilled labour is Rs. 5 per day.
8) compensation paid to skilled labour reflects what others are willing to pay for their services.
9) operating and maintenance cost of Rs. 35 million reflects economic value as well.
10) water levy by project control board will be Rs. 100 per acre. Though, the value of additional output per acre, attributable to water supplied by the project will be Rs. 400 a year.
11) the electricity tariff charged by the project control board will be 30 paise per unit. The consumer willingness to pay, though will be, on an average, 50 per cent more than the tariff charged.
12) project control board is not able to collect anything for the protection provided against floods.
Required:
Define the costs and benefits from the private (project control board’s) and economic point of view.