CF Assignments Shafeq

Assignment: Corporate finance
Student Name: Shafeq Mohammed

Register No:1801016190122
EPGDM TERM II GRADABLE ASSIGNMENT

1. Evaluation of employee group housing offer
20 Marks
A Pharma company has recently recruited 4 scientists at an
average age of 27 and is looking to develop quite a few
pharmacological formulations. With a view to retain them the
company proposes to offer a housing scheme to them on the
following terms and conditions:
1. The number of beneficiaries will be four in number
2. The total cost of purchasing apartments will be Rs.1 crore
3. PNBHFL offers an 18-year term @ 9.00% interest and HDFC
offers 15 years term @ 8% interest.
4. The company will pay the housing finance company on an
installment basis.
5. A Down payment of 5% of the cost of the apartment has to be
made and recoverable from the employee in 24 installments.
The upfront payment will be made by the company.
6. In case of availing the loan from HDFC, 50% of the installment
will be recovered from the employee on a monthly basis and
in case of availing the loan from PNBHFL 45% will be
recovered from the employee. The option of choosing the
service rests with the company only.
7. Assume that employee deductions happen on the first day of
the month and housing loan payments made by the company
happens on the last day of the year.
8. The housing loan is offered on a fixed interest basis and EMI
will not change.
9. Assume the individual apartments are of equal value.
You are called upon to do the following:
1. Calculate the two EMI options and choose the best one.
2. Case Let on Agency Conflict

20 Marks
Lean Conductors Ltd is a mid-sized Public limited company
engaged in the manufacture and sale of electrical cables. As a
public limited company, the organization was performing
reasonably well, earning steady profits and declaring a stable
dividend of 12-15%.
The CEO was feeling the urge to expand the business and taste
the growth of business operations and profits. He started
addressing various options and shortlisted 2 options namely
manufacture of LED bulbs and solar panels.
He called the Gen Mgr. - Finance for a discussion in this regard to
probe the matter further. He also went on to share his dream of
making the company a larger one and his belief in people like the
GM who needs to stay and grow with the organization.
The GM felt excited at this prospect and started making a project
report. He decided in his own mind the solar panel project with a
larger profit margin looked to be a better one than LED bulbs which
was dealer intensive and lesser in terms of unit margin.
Feeling the need to expand rapidly on the investment of the
company and make it bigger and become a CFO in the bargain, he
chose the solar panel project which was more capital intensive. An
assumption about a capital structure and cost congruent to the
existing structure was assumed and the projected financials were
prepared.
The board of directors representing the majority of shareholders
believing in the recommendations of the report adopted it for
implementation. The project faced various hurdles in its
implementation such delay in signing collaboration agreements,
inflated cost due to poor supply of money in the market, downturn
of the economy and so on. The project cost started spiraling up and
to fund the expansion the funds of the existing business line were
inducted into the new project since no further borrowing could be
made. The company slipped into the red and reached a stage of
bankruptcy without the new project even taking off.
Questions:
1. Trace the conflict between the management and the
shareholders in this case study?
Ans: As per the given details its evident that the Major
shareholders are having favoritism for the management,
because in the above case the decision should have been
taken after due discussion with all shareholders along with
complete management team but the decision was taken
without any discussions and detailed analysis was missing
hence the idea is completely failed.
2. Is the act of the GM Finance an error or sin?

Ans: Yes, because as an GM of the company he should have
had detailed market study and analysis on the new business
venture. Also he should have put forward companies future
ahead of his personal interest. Also he should have had
project reports, market analysis reports and same should
have been discussed with all concerned departments like
R&D, Finance etc.
3. Where do you think the CEO went wrong?

Ans: CEO also wrong because, In-stead of assigning the
complete responsibility to one person, he should have formed
a team under GM and should have discussed and monitored
the new business implementation. Its clear evident that the
new business idea was decided by only 2 minds/people
without any plans and discussions!!
4. What according to you is the approach the CEO

should have taken?
Ans: The CEO should have explained the new business plans
with GM ( also should have included other seniors of GM
level) and directed him/them to get prepared with the project
reports, Market study reports etc and then discussed the
same in series of meetings with the teams in deciding which
business to start and analyze the cost requirements and also
should have monitored the developments of project
implementation and execution.

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Assignment: Corporate finance

Student Name: Shafeq Mohammed

EPGDM TERM II GRADABLE ASSIGNMENT

2. Case Let on Agency Conflict

2. Is the act of the GM Finance an error or sin?

3. Where do you think the CEO went wrong?

4. What according to you is the approach the CEO

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