•

.sYMIIB~OSIIS INTERNA r~ONAL UNiVERSlllY (SIU) (EstabUs hed under section 30f the lUGC.Act 1956

vide notification No. r.'9-12120m-U.3 of 11t'1,9 Govemment of lndia]

Subji(!lcl. N,a.me: financi!al Management - III Slu'bj eel C,a CI e: ,206

Date: 3011 1 f2006

IOay : Th LI rsdlay

Semester: III Total Marks: 60

Tmme' : 10.0.0 am to 01. 00 pm

41 .Aftempt.Any Four q1uestioll1s.

.. ,AU questtens ,carry equa.1 M,ariks.

Q.1. A~ood -processl n,g fI rm tintr(Jd!!J cedi a tnew prod uct of p roeessed and 'fomledl potato chips. The: chips ,al~e solid ~1'11 packed eases and a case is the bas~c sa les UI.rI it.

In aome stateme n~s fo rthe ilasttwo qua rta rs are ,e'aoh thought. to' be re,pre'.sel1~aJtiVe of the oostsana IProduc,tive efficiency tihat ea n be e:xp,ec,ted in the next few ,quarters. These lneome st8!~etments reveatl the foUowing:

,

. ~

f irs~ Qua mer Sales

(50,000 cases. @: Rs.-24/-)

COS~ of g oods sold Gross M atr~Q~n

Selling &. .Administra.tive ,expenses .

N'et inoome before tax

Rs ...

Seeo nd (J waner

Rs.

70,000 cases @ Rs.24/-

1.2,00,000

U) 80000

I - 1"- -"-

07,00,000 05,00,000

08,80,000 08,00,01]0

06.90,000

06,50,000

01.501,0001

Tax rate of the flrmis 40%.

Required:

a. Breat-even point tin terms of quarter1'y 'case sales €olr the chip:s.

b. An inve5tmeni~ of ,Rs .. 30 lakhs is made on this product line. What qu a l1elrly case sales and- - i.utai revenue are required ,eacJh q ua rterto earn a 11 ,after lax re:tu rn Qi'f 20% on ~nVlestime n~?

c. ,If S9 Illii 119 p'M~ce is red uoed by R:s .1. 50 per case and Rs .. 1, 5,0,000 advertismng camp'aign IjS mounted, seles will iincreas,e by 20% over the second q uarta r sa les, S hou Id the pia 11 be imp lemented 7'

0,.2. T:he sumrrrsrized balance sheets o,f Victo~ Coml~lililies Ltd. as on 31/12.111997 and 31/1211998 are asfo:~lows:

Assets

31l12/19~n 8,00,000 2,30,000 5,70,OO[) 1,00,0001 2,80,000

2.0,0.00

IF ixed Assets at Cost Les s De precj]ation Net Fi~ed Assets ~nMestments

Current Assets

Pre ~~ m~:nary E~p eases

31112/1998.

'9,50',i()OO 2,90,(100 6,'0.0,0.00 0,80.,0'00 3,30,.000

1:0,000

9,70,000

10,80,000

Uabi~'iUes

Shaii,e Ca,pital Capital R.eserve's General Res,erv,9 De:oentures

Su n d ry Clfed,i~()r$ Tax pliovlision Proposed' Dividend UnpahJl ID~vicl:end

60.,000 _ 21,00,000 '1, ,20.,000 90~OOO 30,000

4,,00,00.0 10,00.0 75,00'0 1 ~40!O[)O 1,,30,0100 8,5,0(10

36,0.00 4,000

(

'9,7.0,000

10,80,000

a. So:~d 0 n 8 machmne for IRs. 25,000'/-. The cost r)f~he mach~lle was R:s.

'64,OOO/-and de,prec~atll~'J.n provided for i~ amounted i~(; Rs.35,OOO/- ..

b. Pmv[ded iRs. 95,~,OOO/-as depreciatwrm.

c, Redeemed 30% of d'ebentured at Rs .. 103/- (a~ Rs.3fg prernlum), d. So~:CiI inv,€!stmentsat pluufiit and credi~ed' p refit ~o ca p~taJ reserve,

'9. Decided~o valuethe stock at oos~~ wher,ea.s ,ear~li er the pracUce Wl:I.S to value stock a~ cost less 10%. The practice was to val~ue! stock at COIS~ less 1 0'%. The stock acoordingl ~o books on 3t/12J97 was Rs.54,OaO'~ and stock on 31/12f98 was Rs. 75,OOOl~ Which was oOfred!y valued at COost.

P repa re fu n"tJ's now atatements Grr:ll WOlrkillil~gl Cap'ita~ bas ls,

~, ... 3"iIi!

· .,,3, ...

Q. ;l.. a. A s im,plitlie,cj] in come statern ent of Zen ith Ltd. is, '9 iv,e n below. Gal'ou I ate and interplf,et its deg,ree of operatl 119 leverage" fin a n.c~a I lev'era:Q'ea nd eombined Ileverage.

Sales

Va ria b'~e Cost lfliixed Cost

II rru®e rest

Tax IRate is 30'%.

RS.11 0, 50,OOlOI~ Rs. 07,'61,000/IRs .. 001 75~OOOI-, Rs.O',10.000/-

(

b. :If~he oombined leverage and ope:raUng leve.ra.'@I€: ofa oompany are 2 .. 5 a nd 1.25 r,e:spective,ly I' fI nd the1linan,c']a'l ,I€f ... "erage and PN ratio, give n tha~ '~he equity dividend' pe r share is Rs,.2J;' wnterest payable per y,ear is IRs. 1, lakh, tota~ fixed cost Rs. O. fi, lakh and sales ar,a Rs.1 (}I ~akl1,

'Q!.4. a, t Explai:11 foUowil1Q methods 'of finarnci.a~ ,ap,pli'aj;sa~ of project N PV~ I'R.R" Projfjtab~1 i~ II ndex

it What are ~he Umiitations of IIRR method? Wha.t am~he soIUJ~iol1ls?

b. The capH.:ar structure of Swan & Co, oom,priisill1g of 12.% debel1hJlIH!! 9% : ~ pr,emrell1ce slhalres and equ ity shares of Rs.1 00 each fls ill pmportio 11

of 3:2.:5.

The- company is con~emp'la;ti ng~o i ntrodluce furthe.r cap~~all ~o meet the exp.arlston needs by see'kJng 14 %, term toan fliOm fi nanci:a~ linstitutions. As ,8 resul~ of thms plroposali '~he' p mp!ortiol1ls, of 'a,ebe ntu res, preference

shares and equiy would g'st reduced by '/Uh 1/1S6Il1Id 11/6 '

h,tlhe light of above propos all cal ClU late the limp,act on w€~Qht€d average cost o:f capita~ .as:suminQ 50% tax rate I ,expec,~ed dividend of groMh rate of d ivwdel1lds 5 %. No eha I1Ige in per sha rei -ls leXlpected a.ftelF ,avail~ng the proposed loan.

Q.S.a.

Explain the WoUowi ng term s b neny.

i. Ventutr>€! GapUal

im. Ba 181 need ::l'CO Fe card

,11111., EVA

iv. MVA-

b. National BoUling Company is contemplating to replace one of ,its botliling' machines. The old machine has a. Gross Value of RS.11 0 Ilaklhs and a, total useful li~e of 10 ye.ars,. The ms(:hine was bought five year'S back. Tile oom pa ny does not expect jn realise a ny reru rn frorn scrapp i ng the 00 ld ma.'chi~ne at the end O'V 1 0 'yea F8 but' if lit is so Id to another company in the ,industry company would receive Rs.6 lakhs for it.

The new machine has Eli purchase price of Rs. 20 lakhs and has, useful Irife of 5 years, It has estenated salvage value of Rs. 2lall<:hs.

The n,ew machine will have a grater cap,acity and the annual salesere expected to in crease form R'S. 1 0 ,Iakhs to Rs. t2 lakhs, DiP elH\li~i n 9 efficiencies wH:h the new machine willalslo produce a ;saving of Rs. 2 I,akhs. a y,ear. Depreciation lis ona ;straight-~ine basts over a 10-ye,ar ~ife. litie 06st of caoltal ts 8% and a .50% t.ax rate is SIPp!licab'le. The present

value mterest factor for an annually 'or 5 years at 8.0/0 is ·3.'993 and (

present vallue, interest factorat the end of 50 years os 0.681 ... -

.Should the company replace the old machine?

a,.16. a. Exp~a i n ttl e' caleu Ia.Non of maxi m um p errmss ibl:e banik, fina nee, to

finance working capital as per Tendon Commiittee norm,

b. From the following details, prepare the working capUa~ requirement forecast.

Production during previous year

level of activity expected ~n current y'ear Cost of RaW' Matellials,

Cost of dmrect wag'es

Cost a,f overheads

Av. Raw material stock Av. Worik in progress

(Raw material fed in the pipeUne - immediate .. Labour and overhead occurrence - u,ni~o:rm.) Av. f,inished' good stock

Av. CII,edit to the customer'S

Av. Credit al'lowed by creditors

S.e Ui og P r,ice'

Wagesa,nd"overneads are paid! on the

1 st of next moo nth. -

Av. Cash in hand

i

~.

1,20,000 units

Same 60% of sales '10%, of sales 20% of sa~es

2 months 1 month

a months 3, months 2 months

Rs.5l~ per unit

Rs. 40.000J.~

(

..

SYMBIOS!S I~NTIERNATIONAIL EOUCA TIONAIL CENTRE DEEMEO UNIVERSlrf

Course Code: 0341

MjBA~·IT Se!mester ~~ ~

F~NANC~AL MANAGEMENT -I(

Date: 10-11-2.005 Day: Thursday

Turte : 2.00 pm [0, 5.00 pm lr ota~ Marks : 60

Note:

.:~ Attempt 31111Y' FOUR 'qtIH!stions •

• :. AU q u esti ons ea rry eq ua ~ marks,

Q1.

A A new comparw oommences Dlisine!sson Jul:y 1 8iiiild deposlts ~s. 10 I a 00 h-, the, bank. This sum will 'be ~f1IS uffidenlt to, f1]lI1.a.n 00 its operatiolils overa perIod of 6 months!, and yOM aim asked to pmpa re a cash bllldg:et from July to Deoomberto dete:l1mine~he m,on~hly

. overd raft ~imU'S t.o seek fKI:m company's bankers, IlJa~a. supp lied is

>I. Sa~es are made: to< one dtstribUition ml'ly on 30 days ta rrns, 3 percent d iseount and ch.eques, are f€!'OOweciJ Ofil ~h e first d,8Y of ttl e m.onthfoliowiflQ due date.

It Plant purchases tota~ing Rs. 5~OOOall'e made ~n J¥ily.

n:l. B udg'etedf$glu res are:,· .

July Rs.

Expernses

400

Augus~ Rs.

soo

.s ep:t1e:mber Rs ..

4(10

Ootob~r IRs.

400

Novembe:r IRs .e

500

D!ecember Rs.

400

I Purchases I

5000

4000

3000

4000

4000

.5000

4000

5000

4000

4000

50001

4000

7COO

BOOO

8000

8000

12000

All P urc h aseaare made on net :301 da.ys term So and cheq ueaa re p ostedto creditors on tilile last da,y of d!!lB' month.

Wages ate paidin tJhe 1Si! week o,f SUbSH3:quent rnonfhs,

Experts as are pa ~cI 50 '110 in the sa me rnontha nd 50% in the n e xt month.

lB. From the follo,wing data of ABC Ltd., prepare

L Funds Flow Analysis

u, Statement of ,changes in Working Capital

114

Q2.

i

~.

Balance Sheets for the year ended on 31st March

Assets

2005

2004

Cash

30,000 .

16,000 ~

2.2,500 I

I! Debtors

45,000

. stock

20,000

40,OGO I

Long term investments

15,000

25,000 I

Mac!h~nery

20,000

12,500 I

37,500

Bundings

45,000 I

10,000

Land

, li abilities and EQ uity

10,000

P'n)V'~sion for de;p rec~alion: ill

Machin€lru I

',I !

BuruldwnJg.s

.3".7'50 91.000

1.,500 10,000

1,000

CredUors

20.0(]!O I

2.25011

1.,750

1 O'l.!ll~stand~ng expe nses

1 Loan

1,00.000 I

25,'000

Z6.,OOO

11,750

A

Exp,~ai n ioUowln 9 ratlos.

i. Debt Service Coverage Ratio

It SlIIp'sr Quick Ratio

iit Averag1e C,0UecUcm Period

R A firm has a. Cost of Rs, 2,00,000 Sales of Rs .. 2,5.0,000 ami an asset turnover of 4. What is the rate of refurn on asset?

C. A firm has proflit before interest and Tax of Rs. 80,000 interest c h ar9'ef;.. of Rs. 8,000, ra l (l:f Rs, 30,000, teta 18 ssets of Rs. 5,0 (], 000 and total I is biliti es of Rs. 3,,{) D., 00 O. What ~s its

~ , retu rn em equ ity a no

'II. fnteresloQvera'g,e

D.

Determine the PIE ratio of a firm that has a net profit after taxes of Rs, 1.50,,000 and 30,mm shares outstanding, s,elUng at a market

2/4

03 ..

04.

price of Rs. 10 per share. What rate of return do shareholders expect

E. A company has ·8 net profit after taxes of Rs. 1,20.000 and pays a cash dividend of IRs. 48,000 on its 36,000 shares outstandinq at a f me whi e Il the s ha re is se·Ui III gfor Rs. 12. Wh at is the yie Id a nd the d i vi dend pa vout?

A. Expla;in the foUowing methods of investment sppraisal along with their merits, and demerits.

I. Pay Back Period

II. NPV method

ill. Accounting Hate of Return

lv. IHH method

B~ Alfa Ltd .. is~h~nkjng of iinstaUing a computer. Decide whether the

computeristo be purchased outright through 14% bmrowing Of to . be acquired on lease renr~al basis. The company is in the, 50% tax bracket, The other data avaUab'leam

Purchase ,of Computer >

Purchase Price IRs. 20.,001'000

An:nu al M aiinienance Rs .. ' 50.000 ip er 'Yea r, (to be pa[d

in advance) , ~

E~ected economlc life - 6 years

Depreciation (~or tax purposes),- straight I~ine method Salvage va'hi.Je - Rs. 2;,OOtOOO

Leasing of Computer :-

Lease Charges - R:s. 4,50.000 p .. a. (to be paid In advance)

Maintenance, expanses to be borne by' lessor. Payment of Loan - 6, years and equal installments of Rs.5,14,271.

A ABC Ltd. has an investment proposal: requiring and outlay ot Rs, 2,00,000 at present (t = 0) . The proposal is expected to have a 2 years economic life, with no salva9:§: \/lah:le._in year 2, there is 0.3 probabiiity that CFAT will be Rs. 80,000, 0.4 probability that CFAi will be Rs, 1,10,000 and 0.3 probability that GFAT wm be Hs. 1,5.0,0001. In y,ea.r 2" the GIFAT probabilities depend on the CFAT that occur in year L The estimated conditional CFAT and their associated cond itional probabtities are asfolkJ'ws :

3/4

CFAT2

0.2

CfAT2 ProDabHily

CFA T 2 Probability

Rs" 80,000

CFAT1; ;;;; RtL 1.,50,000

Probabil~ty

Rs.40,000

RE;. 11,30,000 0 .. 3

IRs. t,.60,OOO 0.1

Rs. 1, DO,DaO

0.6

. Rs. 1,,50,000 0.4

Rs. 2,.OQ.OOO O.B

Rs. 1,50,000

0.2

Rs. 1,.ifiO.OOOO,,3

Rs, 2 .. ,40,000 . 0.1

Co n stru ct a de ci slon tre e tor the propose d i nvestrn ent prop osal a III d a n swe r the fa How~ng :-

I, What N PV wiU til e project yield if th e· worst 0 utcorne is real ized?

Wh at is t he p Fa oabilmty of occurrence of tjh~s N PV?

I!I. Wh at wm the N PV be if ~he best outcome occu rs? Wh at ~ s Its p robab~i ity?

m. Wi'll; the pro~ect be accepted?

( CFAT - Cash f\'Iow aJfter Tax l ( '4l

B. Ex;pla in r rnperta nt te,cnniq ues to Wriu:;OJlP QfaJ~e ,risk lUI Capfta I Bud gating Exe rcmse.

05 ..

A Ex;pl.ai n jhe CAPM method of finding out cost of ca p Ra I.

What do you understand by 113 ? What ijs its siglnit1icance,.

B. Wha.tis 'EVA?' How is it .celculated? How does iit help in maxi m·izmng sha reho~d ers v2:I.lue? HQ>wwoll~d you cornp are lt wn~1l ROI as a measure ,of company performance?

Q'~l Wri!~e Shorf ~otes on Any THREE.

A. Balanced Soore Cam'

B. MVA and M.SJlrket Capita Hza;tio n

C. VentlU re Cap itall

D. Capital I nves trn ent App raisal for Proj,ects with u nequaJ lives

E. Alima n 's Z sec re

,4 ( )

***** .

4/4

n

YM '5">. ~'I;. ~'!!, 8" 9<:1'.

--------~~--~~~~~~~~~~~~~~~:~~~~~~~~~--

o 1_000 1.000 1.iX.J:l LOCI:) 1,(0) tClOO MOO 1.0001.(00 tCOO lM) 1.000 1.0C<I lOOi:l l,OCliJ tCOO' U(J:I 1.000 UOO lCOO 1»00 UI'JJ 11-OClJ l,C()i) ; ,ro:! \.000 l.cw UOO

.~m ,9J,~' ,!'J~ .~2'!l .9M .009 3.'l", .:em .& .en .fIlO .96~ sss .,&47 1M .8ll .a2~, .:m .U~ sa7 ~ ,~ .1'811 .iSl .m J&'9. "Nl .7U

,sm ,800 ,m J1s1 ,841 ..826 Jlo1.2 .m .~ .7:69 .156 J.~ .iJt ,?ta: .• '00 .G34 ..m !S'l'2 .Ml 'J50 ,.640,6:30 RO 1fj·H) .00' ..s.92 ~ 510

~. .~.~.m J~ ,m JSI JJ1 :m m ,.GiS .~ ,641 .&2~,~ .'5.SJ: .m ..!\I5.ji .~1 .S3~ .. S~~ "M2 .~ Me .m ,~ .m ,(00 ~

~ ,m.m JIJJ .m .100 .683 j],5S .~',6;13 .S91;2 .m )552 ~ ,51& .01.99 ,~l ,~,7 Mil ,m .,m ,~10 .397 334 ;m JS1. . .350 .301 .200

S J~. m J 13 .lEa 1 ,6130 ,&~1 ,.5a3 ~SQ' _~, ;s~s .4:37 A7S .4SB .437 J\9 ,.~2: .33G Jlt J5.S .M 1 .:lM .115 Jro .291 m .269 .m ,100

6 .'4!5. ~'OS, !li&G JG:IO,5S6 ;~ .S3S .~ ..(00 .a ,432 .410 .390 ,.370' ~js.~ .335 J 1 9 .3Gl: ml .215 Jill: .250 ~.238 .m ,~1i .207 ,165 , , jJ:

7 J 11 .,&E;S J523: ;583 .5<17 ;m ,1l82 AS1,~~ .400 .376.354' ',333 .3U -" '100 ,219 .2&3 .20 .tl5 .222 ..210 .19B 1 ,us .m ,1 E3 <l5S ,122 .os s

a "617 "62'] :5.32 .s.ro ,502 .4S7 ,~a.ii .1W4 J1i, .351 m 3li;5 .28:5 . .2613- . .249' .m .JIB ,20<1. 01911 .H9 .. lea .157: .1~ JW .lro .123 ,091 ,OOP;

S .~5 .~1 .~ ;500 ~ AN .391 .3:5~.m .300. m ,1m .i0i3 .:225.lOO' .1'~. JEll) ,~67 .1~5 .1,w ,1:'14 .125 ,., 16 .t08 ,101, J~ ,007 ,0<!8

10 .6 1 ~ .S§;! :§08 I~ro ,U~ J$ .352 .J22 J9lj, ;210, .2-47 m .200 .n~ . m: .1&2 +~di9 •. m .. 1~~·. 118 ,1017 ,0:99 .092 .(:;$ ,OPS ;073 ,.OSCi ,m

,., .~$ .5<21 .m A29 .3M, jOO ,,317 mlS' n'l! ;21!i ,,]95 . m .162 .,'1. .11~ .m SI2 .100 .004 .056 .079 ,on ~ .001 '()56 .JJ.J7 .025

l2 .551 .4S7 ~. .337 .3615< J tSi 0286.25,' .n~ . .2QS : 187 ,~6S .152 .137 .1124 .112 .102 ,~~ m3 .076 :06.'9' liil. ,OSf .QQ £!ol1 .00 ,027 ..o1e

ts . .S30 .-169 "m .3€iB ,J26 . ..zoo l$.! 0229 .2G4 .U2 .~m ,145' ,~)tl .11S .H14 .($]: .-004 ia'~ ~. .oG1 .os.s .059 .MS ~ .oJ',! .m .020 ,.01:3

l~ ,.005 ,M~ JSi!l ,34:0 ;2'99 . .lea m: .205 .1S1 .1,00 .1 ~J .12S ,111 .C:99 lOSS me ,iOO.'31 ,0&2 .05.5 .049 .OM ,on ,OSS .al'2 h2S .(11$ .015 .m

~5 ,48~ ,m J5.2 .3I'S .US ,zsg .'100 .1,83 JOO .140 .123 ,1,08 ,095' lIIB4 .07~ .oos .0S1 .os, .MS .()o10 .ms ,,00:1 .ore ,0£5 A122 ,~!"20 .eu .000

16, A~ ,3S4 .m .2:9'.2 ,25'2 .~18 ,Hta .16:31 .,H~ .123 .10'7 .003 .(!I9:11 .0111 :002 ,m64 .041 .(!H!2 .roe .001 .028 m~ ~.o22 ,019 ] n ,01 S .roa .oos

17 .~36 .,:1]1 .m .2~O ,231 .l~ ,170 .145: ., US' .lIOB .003 .,COO .OS9 .>0&1 £1: ~ .;~ .03J: me .001$ .02".3 ,020 .<m ,015 . .ou ,0" 2 lI:J.S ,.003

lB ,416 m .296 ;250 ,212 .1 so .. ~ $l .11:l:1 ,111 .09$ ,.(118]. ,009 ~ .00, J4.4 ,os! ,a:J2 .&2B JD:24 A2] .Q1 B ,(116 .o1~ ,01 ~ ,010 ,009' .(0) .002

19 ~.331 ,;m :m J 94 ..1 54 J 3B ,m, 1003 ,.em ,.0;0, ,00:1 ,[151 00 .007 lall ,027 .m ..am ,D117 ,1)1.4·.012 ]11 .009 1M: .007 ,003 ,on

to In J12 JS8 ,215 .na ,149 .124 ,1001 .001 .,013: ,00 ~ ,as,,:,MlI J37 ,031 .02'£ AU 10191 .olISi,Q~' .a'~2' .010 ,000 .00],0;)5, .005 .0'1)2 ,00 1,

-2~S Jl) .1 ~ ,1.\6 .IIG ,092 .07J. .ass bI'l'

.231 . tN . in ,001 .015 ,057 .044 :033 .OlS

. M:l ,1)) .Cl'W ,C611 W ,Cl3I1i .0?:6 ,OU .. II' (

.m .em .0G'1 .Q4.6 .031 ,022 .01 S .au .coo

. m ,1m ,049 ,031 .1m ,0 l4 .009 .ooe .004

. .oo~ ,0S1 ,~ ,021 .013,009 res 100il' I1!l.

".,.,. ...... '

,020 .tillS .013 jm .em .001 = .fI:l5 ~ .OCIJ ,003 .002 .002 .001 .001 .000:

,CO!l ,~ JOO5 .oooc .@l3 .003 m m .00 1 .001 • ":01 .cot HJJ ,~ .000 .00(1

.004. .aoJ .OO~ ..00'2 .(1(111 .0011 ,.001 .001 .(I00I lOO fl m 1\00 _(00 ,CCIj :000 ,000

.001 ,001 .001 '(((U .000 .(00, fOO ~ .000 ,(00 JOO .M .WJ ,coo .(100 .000

.oot .COt ItfJ ,moo .!lOO J11J ,tlIJ .OCJ:l .I))) ,.coo j 00 ,OCIJ n ,000 .WJ .000

.QJQ',~ 1HJ,lX/3 .000 .com Ji1J J'J1J ,00:) ,OC!J' MiJ ,OCO ,f/iJ ,coo IffJ I!JO

..

SYM,BI:DSIS INTEIRNAT~ONAl UNIIV~IRSITY (.51 U)

(Established under section 3, a:f the UGC Ad 1956

v~dle notifll'caUon No _ F.9 ~ 1.2/20 0 1- U.3 of the Gave rnment of I rid ~ a)

Ba.tcli1l: 2005-07

Subject Na.me: F~f1Iancia~ IManagement U

Semester: U

Date 21105f2007

Day !Monday

T otal 1M arks:' 60

Time :11 0.00 amto 01. 00 pm

.

I 4!

(

• .Attempt AJilVf~ul!' quesUons.

• An qUE!'sfi.o,ns c8Jliry ,equaii mall'iks ..

Q. 1. a . From the followi I1g i nforrnatio n ca h::u~ate work~n gcapital cyol'e in days.

Raw Ma.~erial turnover ratio WIP turnover ,raik) Finished Goods turnover Debtors tu mover ,rati,C),

. fj'Umes" 12 Urnes 24 times 8 times

"

' .• ~

D., An inv,€:stment project provides cash irrfilows of Rs. 7 .80.0001~ per year for a y,ears. What is

(

L 1,i"J,e proje,ct paylba!ck

i i. Disco u n~ed prtl~ect payback

If the ~nma.i cost is Rs, 30,001000/-7

You may assume cost 'of eapitel as, 10% at which present value of

RS.~I .. OOf,or ,8 ye.ars is 5. 3349. .

Q .. ,2. a, !Explain CAPM method of find~lilg out cost of equity .. What do you u nd e rsta nd by i3 (b eta)? Wh at ts its si'g l1lifican:oe?

b. What is EVA? How is it caJcufa"~ed?' How would you compare ~t w[th ROlas a measureof JinJ!nciaI performance?

iI- ~ ill 2 i t. '"

(J ... 3. IEx]phlin fcdlow]n:g methods of lnvestrnent appraisal along with the,jr meJTi~ and demerUs.

a. Pay Back Period,

b. Discounted Pay Back Period.

c. NPV method.

d. IR.R me~hlod.

e. PnJfiitabml Ity ~Inclex Method" [ ACOOlJ I1lI~i n 91 Rate of R,etu rn.

Q.4,. Expl'ain~ollowing raUo,saJong with their significance. a, Add! Test or Q ulck Ra~iQ.

b. D:ebt. EqUli:ty Ratio,.

c. 0 pelra.tJing Expense's Ratmo .

d. R.e:turn on Bhareholders' !Equity ..

e. EPS.

'" PIE IRal~io.

(

1. Materials aile purchased and receiv,ed one mOI1~h before being used and paymellt is made ,2 mCHiI~hsa!fter ~t is If,eceived.

2" Cash iis i"€,ooived from custom ers 3 rna nihs ,after mn[shed good s are sold and deliivered tojhem.

3. lNo time, IlagappUes 10 p,aymernts of waQes and eiX!,p enses,

4. F 0 Ih)wi n 91 flQiures app Iy~o weooll~ andflW~ure months.

JanuaLY

Ma.ter~a~ IReceh/'E!ld 1(ln Rs.~ _

Sales (hlIRs.)

Wages & Expens,es I(ln Rs .. )

Maroh

22.,000

24,000

33,OOQ

36,000

(

10,OOD

10,50[11

Apr.ii

May

26,000

32.,000

34,OO()

39,000

42,OO~)

45,000

48,000

51,000

11,000

1i ~,,500

1,.2.,,5.00

13,000

...

5. Cash balance at the beglhming of AprU ls Rs. 10,ODO.

. , .

6. All products are sold iimmedi,ately ~hey have been made and materials used' and sum s spen [ on wag es a nd expenses rei ate strictly to the sales made duning the month.

Prepare Cash floW' forecast month by month from Aprli'l to July"

Q. 6. The management of XYZ ltd. has called for the statement showing tne wQ,rking capital neededto finance a level of activity of 3"OO,OO(] units ,of outputfo rme year. The cost struetu re for the a b ave activity lew I liS as foUows:

(

Raw M ateriais Direct labour Overheads SelUl1Ig Prioe .

Cost/Unit Rs.

2,0

:5

15,

50'

Past trends indicate that raw materials are held in stock on average 2 month, WI'P (50% complete) will' be % month producflon, finished goods average stock 1 month.

S u pptiers exte nd cred it of 1 m onth, Debto rs are a UO\4'J'ed cl9di:t of 2 months. Minimum cash baiancs of Rs. 250,0.00/- is to be malntained, Production pattern is uniform during the y'€!,ar. Prepare a statement of determination of 'wo,rking cap.it!L

SYIM 8105118 IINTERNAT,IONIAl UNIVERSIITY (SIU)

"E stalblt! S hed unde r sectio n 3 of tin e U G C Act 1 S 56

vide notification No. r.9-121.2001-U3 of the Go:\!~mment off llltndia)

Course Name: MBA. (IT)I

Subj,ect Name: FhllanciaJ Management - In

Subject Gode: 304

Date 15.10512007

Day: Tuesday

Semester: m Total Marks: 60

Time : 02.00 pm to 05. 00 pm

~ nstrud;,o'lI1 s:

• AHem pt AIIlI Y r ou rq uestl ens,

• figure-sfa the t'light ~ndicateful:ll marks,

IQ. 1,. a . From the ro ~Iowi ng i nfonnatian ca~ CiU late wo rkmngl ca pita I cycle in days.

Raw Ma~eria~ turnover ratio . WllPturrnover ratio

Finished Goods turnover raJUo

Debtors tu mover ratio '

~,

06 Urnes 12 tmes 24 times OB. tlrnes

b. An investment pr,ojecu provides, cash infi1io'Ws of Rs. 7,80~OOO/- per year for e. years. What. is:

r, The project payback

H. D lscou nt project paybaok if the inr[tial~ cost is Rs; .30.,00. 000(-.

You may assume cost of C81pital ast 0'%.

Malrks.15

l( Q. 2. a. Explain CAPM method offirnd~liIgout cost a,f equity. What do you

understand !3 (beta)? What is its s.ignifiicanoe? ..

b. What is EVA? IHow it ItS calculated? How wou~d' you compare ~t wlith ROI as a measure of f~nancial performance?

IM.a rks 1 s

Q:. 3. E xp,l a ~n~ollo'wi fl:9 rneth ods of i nvestme nt a pp fatl s8,i.aJong w~th thel r m eras an ci dem:elwits:

a, P,ay 'Back Period.

b. IDisco unted Payback Perio d. C,' NPV M€'~hodl.

d. I:RR Method.

e. Profitab.i~ity Index Method .. f. Aocou Ilti ng Rate alif R:!!~U'rn.

a. Op,etraUrng and Fi IlS ncii:!J;1 l.even!lgle.

b. Balaneed seore Gatfid',. Ct. Venture' Capital!.

d Funds IFI ow An:a~ysis. e. Lea.singl Vs. l8uywng.

(

'Marks 15

Q. 5" a. Wh a;~ do yo U ILl nde rstand by Break Eve r Ana Iys is? What a re the as S[J mption s u m:l1erWyilngth e~he(H'Y of B. E point? IExph~lifl w~~h a d iag ram effect olf c:h ang e i n vall"iab~'e cost, fixed cost and' price 0 n this:

IB.E. Ipoint .

b. A. Icompany produces a single! p,f1Jduc[ and~ has budgeted for the

prod u etio n of 1 i (I 0,00 Ol- UlWiI~~ d Uinirruglth e JI1e:d qua rter, The' cost

estlm ate for the Iquarter are asfoUows: .

Direct Labour

o ire c:~ Materia ~s Variable Overheads Fixed Overheads

IRs. 16,00.,,000/Rs. 2,m},OOO/Rs. 2,,(lO,OOO/~ Rs. 4,00,000/-

(

Th e co m pa n y has recelved 0 rders for ,8 0 i 000/- III n its dILl ri ng the, corn i n 9 period at the £jl€ne:rally accepted market price of Rs. 18/- per unit a customer is wiWng to order remalniingl 20,OOOf- unitts at IRs. 12'/~ per unit. Should the company accept the offer?

Ma.rks 1,5,

•. ,.3 ... ,

••. 3 ....

'Q. 6. You are required to determine the we~,ghtedaverag,e cost of capjtal {Ko) of '[he K C. ltd. Using

i book va'llue wei'ghts

~ II.. Market val ue we ig hts.

Ca p~ta I stru ell! re (book va I ue)

Rs. 8,00,000/Rs. 2,00,000/Rs. 1 o.OOJmOl~ Rs. 20,00,000/-

An these securities are traded in the capital rna rkets, Recent p nees are debentures @ Rs.110/- , Preference shali'es@ Rs, t20/~ per shere andl,eqtdly aha res '@ Rs. 221- per s h are, Amici paledex1ema~ tin an cial '0 pportu n lties are:

De bentu res (Rs,. 100 per debenrtme)

p reference sha res {Rs, 1001- per s ha re) , Eq u ity shares (iRs. 10 pier share)

r, Debenture redeemable at par: 20 YGo.fS maturity, 8% couoon rate, 405f1otatic:m costs, sale price Rs.1 OO/~.

,iii. Prete re n ce share rede emab~e at par: ~ 5 yea rs m stu nity, 10% dividend rate,5°/~ flotation costs, s,a~e price Rs. 1 001-.

iH _ Eq uiity sha re Rs .21- per she r>efloa.ta'~ion costs, sa le price Rs .. 221~

ln add ilion the d iv]dendi expected Or! the eq uity s ha re at the end of the - yea u Rs, 2/- per share, the anti c~pated 9 mwth rate in dividend 8, is 5'% and th e com pa n y h as the practice of payrung ali its earn i rig in fhe fcrm oif dividends. Corporate tax rate is 50%

- Mar:ks 1.5