 |
|
 |
| |
|
|
|
|
|
 |
|
 |
|
 FINANCIAL MANAGEMENT |
|
|
|
|
| |
Hello student`s
Welcome to our Institute. We are here to provide you a Questions Papers for Year 2009,2010 and 2011.
YEAR-2009 M.B.A-II semester
Time:3 Hours
Total Marks:-70
The Questions paper is divided into two sections.Sections A contains 6 questions out of which the candidate is required to attemp any 4 questions. Section B contains short case study/application based on 1 question which is compulsory.
All questions are compulsory.
SECTION-A
Q.1 What are the basic financial decisions? How do they involve risk-return trade off?[14]
Q.2 Write short notes : [14]
(i) Financial leverage and operational leverage.
(ii) Bonus shares
(iii) Lease financing and Hire purchase financing
(iv) Commercial paper.
Q.3 (a) The following facts are available : [7+7=14]
Risk free rate........................................9%
Required rate of return.........................18%
Beta coefficient of ABC share...............1.5
Expected dividend during next year.......Rs. 3
Growth rate is dividends.........................8%
Compute the price at which the shares of ABC should sell ?
(b) What is Risk? How can risk of a security be calculated ? Explain with the help of example.
Q.4 (a) Consider the following figures pertaining to risk free rate, market rate and return rate of a security of Pappu Ltd. [10+4=14]
| Year | Risk-free rate(Rf) | Market rate(Km) | Security return(Rj) |
| 1 | 0.06 | 0.14 | 0.08 |
| 2 | 0.05 | 0.03 | 0.11 |
| 3 | 0.07 | 0.21 | 0.29 |
| 4 | 0.08 | 0.26 | 0.25 |
| 5 | 0.09 | 0.03 | 0.07 |
| 6 | 0.07 | 0.11 | 0.04 |
Determine the cost of equity capital in the context of CAMP. Past data may be taken a a proxy for future.
(b) Risk free return - 7.75%
Beta - 2
Expected return of investors-16%
Apply CAPM compute the expected market return.
Q.5 (a) What are the factors that influnces management`s decision to pay dividend of a certain amount?
(b) Define and distinguish between the concepts of merger, takeover and amalgamation. Illustrate your answer with suitable examples. [14]
Q.6 (a) What is capital budgeting ? Why is it significant for a firm ? [7+7=14]
(b) How do you calculate the accounting rate of return ? What are its limitations ?
SECTION-B
Q.7 Case study :
A firm has applied for working capital finance from a commercial bank. You are requested by the bank to prepare an estimate of the working capital requirements of the firm. You may add 10% to your estimated figure to account for exigencies. The following is the firm`s projected profit and loss account :
| (1) | Sales........................................................... | 22,47,000 |
| (2) | Cost of goods sold..................................... | 16,37,100 |
| (3) | Gross profit.................................................. | 6,09,900 |
| (4) | Administrative expenses.............................. | 1,49,800 |
| (5) | Selling expenses........................................... | 1,39,100 |
| (6) | Profit before tax............................................ | 3,21,000 |
| (7) | Tax provisions............................................ | 1,07,000 |
| (8) | Profit after tax............................................ | 2,14,000 |
| The cost of goods sold is calculated as follows : |
| Material used................................................... | 8,98,800 |
| Wages and other expenses................................ | 6,68,750 |
| Depriciation................................................... | 2,51,450 |
| | 18,19,000 |
| Less : Stock of finished goods |
| (10% product not yet sold).............................. | 18,19,000 |
| Cost of goods sold | 16,37,100 |
The figures given above relate only to the goods equal to 15 percent of the year`s production (in terms of physical units) are in progress on an average requiring full material but only 40% of other experses. The firm has a policy of keeping 2 months consumption of material in stock.
All expenses are paid 1 month in arrear. Suppliers of material grant 11/2(one and half) month credit . Sales are 20% cash while remaining sold on 2 month credit. 70% of the income tax was to be paid in advance in quarterly instalments.
YEAR-2010
Time:3 Hours
Total Marks:-70
The Questions paper is divided into two sections.Sections A contains 6 questions out of which the candidate is required to attemp any 4 questions. Section B contains short case study/application based on 1 question which is compulsory.
All questions are compulsory.
SECTION-A
Q.1 (a) Discuss Finance function for wealth maximization.
(b) "It is useless to emphasize on time value of money when interest rate and inflation rates are unpredictable, especially with respect to Indian economy."- Comment [6+8]
Q.2 (a) Discuss limitations of "Capital Asset Pricing Model"
(b) A Company share`s has following expected returns with associated probabilities :
| Return(%) | -20 | -10 | 10 | 15 | 20 | 25 |
30 |
| Probability | 0.05 | 0.10 | 0.20 | 0.25 | 0.20 | 0.15 |
0.05 |
Calculate expected rate of return and standard deviation. [6+8]
Q.3 (a) Discuss factor affecting working capital requirements of seasonal industries.
(b) Discuss relevance of the assumptions of Modigilani-Miller. Theory of capital structure in contemporary economic scenario. [7+7]
Q.4 Write notes on : ( any two)
(i) Corporate restructuring
(ii) Treasury Management
(iii) Dividend Policy [7+7]
Q.5 Calculate Degree of Operating Leverage(DOL), Degree of Financial Leverage(DFL),Degree of combined Leverage(DCL) for the following companies :
| Companies | X | Y | Z |
| Output(in units) | 50,000 | 10,000 | 80,000 |
| Fixed cost(Rs) | 8,000 | 10,000 | 2,000 |
| Variable cost per unit(Rs) | 0.30 | 2.00 | 0.05 |
| Interest on borrowed capital (Rs) | 5,000 | 9,000 | Nil |
| Selling price per unit (Rs) | 0.80 | 6.00 | 0.20 |
(a) Verify the calculated DCL using DOL and DFL.
(b) Interpret the results [7+7]
Q.6 Rank the following two investment proposals using 'net present value' method and 'pay back period' :
| Year | Proposal 1
Cash flow before tax(Rs) | Proposal 2
Cash flow before tax(Rs) |
| 1 | 19,000 | 19,000 |
| 2 | 19,000 | 23,000 |
| 3 | 19,000 | 25,000 |
| 4 | 19,000 | 19,000 |
Cost of capital
Amount to be invested(Rs.) | 10%
23,000 | 10%
25,000 |
| Life In Years | 4 | 4 |
| Salvage value(Rs.) | 3,000 | 5,000 |
| Tax rate | 50% | 50% |
| PV factor at 10% |
| Year 0.........1.00 |
| Year 1.........0.909 |
| Year 2.........0.826 |
| Year 3.........0.751 |
| Year 4.........0.683 [14] |
SECTION-B
Q.7 Evaluate following buy or lease option :
Buy option :
To buy the equipment by taking loan of Rs.1,00,000 from any bank, loan repayable in 5 year -end installment and the rate of interest is 15%. Life of equipment is not known, but while calculating, show calculations for 10 years. Depriciation is to be charged @ 15% on written down value. Discounting rate applicable is 16% and the tax rate is 50%
Lease option :
To get the equipment on lease rental of Rs. 32,000 per year(year end) for 5 years.
(a) which option (buy/lease) is prefarable on the basis of 'present value' of cash out flows?
(b) which option (buy/lease) is prefarable on the basis of 'equivalent annuity value'?
PV @ 16%
| End of Year : | 1 | 2 | 3 | 4 | 5 | 6 |
7 | 8 | 9 | 10 |
| PV Factor : | 0.862 | 0.743 | 0.641 | 0.552 | 0.476 | 0.410 |
0.353 | 0.305 | 0.263 | 0.227 |
present value annuity factor
| (16%, 10 year): | 4.833 |
| (16%, 5 year): | 3.274 |
YEAR-2011
Time:3 Hours
Total Marks:-70
The Questions paper is divided into two sections.Sections A contains 6 questions out of which the candidate is required to attemp any 4 questions. Section B contains short case study/application based on 1 question which is compulsory.
All questions are compulsory.
SECTION-A
Q.1 Explain as to how the wealth maximization objective is superior to profit maximization objective ? [14]
Q.2 (a) Explain the Lock-Box System.
(b) The Board of Directors of Ruby Ltd. request you to prepare a statement showing the working capital requirements forecast for a level of a activity of 1,56,000 units of production. The following information is available for your calculation.
| Particulars |
Rs(per unit) |
| Raw Materials.................................. | 90 |
| Direct Labour.................................. | 40 |
| Overhead....................................... | 75 |
| Total............................................... |
205 |
| Profit.............................................. |
60 |
| Selling Price Per Unit....................... | 265 |
Raw materials are in stock on average one month
Materials are in process on average 2 weeks
Finishing goods are in stock, on average one month
Credit allowed by suppliers - one month
Time lag in payment from debtors - 2 months
Lag in payment of wages - 1.5 weeks
Lag in payment of overheads - one months
Add 10% to calculated amount of contingencies
20% of the output is sold against cash. Cash in hand and at bank is expected to be Rs. 60,000. It is to be assumed that production is carried on evenly throughout the year. Wages and overheads accrue similarly and a time period of 4 weeks is equivalent to a month. [14]
Q.3 (a) What is "Optimum capital structure"? -Explain
(b) A company has the following captital structure on 31-12-2003
| | Rs. |
| Equity Capital (20,000 shares) | 10,00,000 |
| 10% Preference share capital | 2,50,000 |
| 14% Debentures | 7,50,000 |
| | 20,00,000 |
The Company`s share is currently selling at Rs. 20. Next year expected dividend is Rs. 2 Per share will grow at 6 percent forever. The Company is in the tax bracket of 50 percent. You are required to calculate :
(a) WACC based on the existing capital structure.
(b) New WACC if the company raises an additional Rs. 5,00,000 debts by issuing 15 percent debentures. This will increase the existing dividend by Re. 1 and leave growth rate unchanged, but the price of share will fall to Rs. 15 [4+10]
Q.4 (a) Write a brief note on CAPM. [6+8]
(b) Prepare income statement of the P and Q firms.
| Particulars |
P |
Q |
| Corporate tax(%) | 40 | 40 |
| Interest p.a.(Rs) | 12,00,000 | 10,00,000 |
| Operating Leverage | 2 | 4 |
| Financial Leverage | 2 | 3 |
| Variable cost(%) of sales | 60 | 50 |
Q.5(a) Examine the factors determining the dividend policy of a company. [7+7]
(b) From the following data determine price per share According to Walter`s Model and comment.
| Particulars |
ABC Co. |
XYZ Co. |
| Earning per share Rs. | 10 | 10 |
| Cost of Capital(%) | 12 | 12 |
| Return on investment(%) | 15 | 15 |
| Dividends per share Rs. | 8 | 5 |
Q.6(a) EXE limited had received an offer of quantity discount on its order of material as under :
| Price per tonne(Rs.) |
Tones(Nos.) |
| 1200 | Less than 500 |
| 1180 | 500 and less than 1000 |
| 1160 | 1000 and less than 2000 |
| 1140 | 2000 and less than 3000 |
| 1120 | 3000 and above |
The annual requirement for the material is 5,000 tones. The ordering cost per order is Rs.1,200 and stock holding cost is estimated at 20% of material cost per tonne. You are required to compute the most economic purchase level.
What will be your answer to the above question if there are no discount offered and the price per tonne is Rs. 1,500?
(b) The risk free rate is 5% and the market risk premium is 8.6% and Beta of security is 2.83, what is the expected return of the security under CAPM. [10+4]
SECTION-B
Q.7 A company is considering purchase of machinery which costs Rs.8,00,000 and which has an estimated life of 10 years. This machine will generate additional sales of Rs.4,00,000 per year while increased costs and maintenance will be Rs. 1,00,000 per year. The cost of the machine is depreciated on a straight line and has no salvage values at the end of its 10 years life.The company has a cost of capital of 12 percent and a corporate tax rate of 40 percent.
You are required to calculate :
(a) Annual cash flow
(b) The Net Present Value
(c) Profitability Index
(d) The payback period
(e) Internal rate of return.
Should the company purchase the new machine ? [14]
|
|
 |
|
 |
|
|
|
|
 |
|
 |
|
