ICFAI University Dehradun MBA Program: Class of 2009 Terminal Make up Examination ‘Semester 0 Course Financial Management - Il Program Course Code MBA SL FI 502 QUESTION ‘OM’ ‘QUESTION, BOOKLET CODE ‘COURSE CODE BOOKLET NO. | A | 86 | «Tobe filled by the candidate ENROLLMENT NO. | This question booklet comprises of Part A, Part B & C: Part A: Part A consists of 30 multiple choice questions which test your understanding of basic concepts in the subject. ii Part A to be answered in OMR sheet provided to you separately. Detailed instructions for answering are given on OMR sheet and also overleaf. iii, _ Time allotted for answering Part A is 30 minutes. Part B& iv. Part B consists of Problems testing, Conceptual Understanding and Application, Analytical Ability, Caselets, Situational Analysis / Applications of concepts. v. Part C consists of case analysis. vi, Total time allotted for answering Part B & C is 2% hours. vil, Both Parts B & C will be answered in a SINGLE ANSWER BOOKLET.Part A: Basic Concepts TOTAL MARKS: 30 MAXIMUM TIME: 30 Minutes From the following information, compute the operating cycle of LMP Ltd. No. of days the raw material remain in stock is 60 days, supplier's credit available for 15 days, production time 15 days, finished goods inventory period 15 days, realization from customers takes 25 days. The operating cycle therefore would be: a. 115 days b. 100 days c. 75 days d. 85 days 2 90days Commercial paper, is a short term usance promissory note with fixed maturity period, issued by: Corporates & primary dealers All India Financial Institutions Banks (a) and (6) above None of the above seoge Surabhi Enterprises has given you the following information, The Re-order level 4000 units, minimum usage 300 units per week, minimum lead time 2 weeks and re- ordering quantity 2000 units. ‘The maximum stock level of Surabhi Enterprises should be: 1900 units b. 5400 units c. 2900 units d. 4000 units e, 6000 units Under cash budget system method, working capital is determined by: a, Ascertaining level of current assets b. Ascertaining level of current li . Finding cash gap after taking in to account projected cash inflows and Outflows d. Allof the above €. (a) & (d) above10. Which of the following is not part of working capital management? a. Credit period to buyers Proportion of current assets to be financed by long term debt ©. Dividend payout d. Cash credit limit ¢. None of the above. A low current assets ratio implies one of the following: a. Greater liquidity & lower risk b. Poor liquidity & higher risk ©. Greater liquidity & greater risk 4d. Poor liquidity & lower risk e. None of the above. Financial temporary cusrexs zssets with short term finance and permanent current Assets with long term finance refers to: a. Matching approach b. Conservative approach c. Casual approach 4d. Conservative approach €. Dual aspect approach Banks generally prefer Debt Equity Rati sae None of the above Ifa company issues bonus shares the debt equity ratio will a. Remain unaffected Will be affected Will improve Will be negatively affected None of the above. pags In the balance sheet amount of total assets is Rs.10 lac, current liabilities Rs.5 lac & capital & reserves are Rs.2 lac . What is the debt equity ratio? A 1 1 LL 2:1 a. b. 6 a. e ‘None of the above. a Oa 00 On Ma hy AE a Oe ee ee ee a a a aEML. 12. 4, 15. 16. The long term use is 120% of long term source. This indicates the unit has Current ratio 1.2:1 Negative tnw Low capitalization Negative nwe. Positive npv Current ratio is 4:1.Net Working Capital is Rs.30,000.Find the amount of current Assets. a, Rs.10,000 Rs.40,000 Rs.24,000 Rs.6,000 Rs.41000 sees Quick assets do not include a. Govt. bond b. Book debts ¢. Advance for supply of raw materials 4._Inventofies. e. None of the above Financial leverage means a. Use of more debt capital to increase profit b. High degree of solvency c. Low bank finance 4. Decrease in efficiency €. None of the above ‘The past returns on a security are taken as proxy for the return required in future by the investors under: a. Capital Assets Pricing Model Approach Earnings Price Ratio Approach Bond Yield Plus Risk Premium Approach Realized Yield Approach None of the above The following does not affect the capital structure of a business entity: a, Cost of Capital b. Size of the Company . Market Rate of Return d. Floatation Costs e. None of the above17, 18, 19, 20, 2 ‘The following is not an assumption of Miller and Modigli a proach: Capital Markets are perfect b. Investors are rational and behave accordingly The ‘The average expected future operating earings of a firm are subjected to random variables There is corporate or personal income tax None of the above of Public Deposits as a percentage of paid up capital and free reserves for Government Companies is: 20% 25% 30% d. 35% None of the above If the credit terms is net 2/15 Net 30 it simply means: a b. c 4d. e. 2% - 15 % discount if dues are paid within 30 days 2% discount if dues are paid between 15 ~ 30 days 2% discount if dues are paid within 15 days but no discount if dues are paid beyond 15" day but on the 30" day. 30% discount if dues are paid between 2 ~ 15 days None of the above Factoring where the factor purchases receivables on the condition that any loss arising out of irrecoverable receivables will be bore by the client: b, c. d. e. Recourse Factoring . Full Factoring Maturity Factoring Bad Debts Factoring . None of the above The following committee was not appointed to suggest measures for regulating bank Tandon Committee Chore Committee Birla Committee Marathe Committee None of the above nnn22. 23, 24, 25, 26. Under the ABC Analysis control ofthe following category of items needs to be intensive: a. Category C Category B Category A Raw Material ‘None of the above pecs One of the costs considered while calculating EOQ is: Promotion Costs Ordering Costs Bonus paid to Workers Capital Expenditure None of the above pacer The credit policy of a company does not include the following variable: a. Credit Standards b. Credit Period c. Cash Diseount to be extended 4. Monitoring Receivables e. None of the above The amount of cheques deposited by a company in the bank awaiting cl called: a. Net Float Gross Float Collection Float Payment Float None of the above eaog The Benefit Cost Ratio is also known as: a, Wholesale Index b. Consumer Price Index ¢. Profitability Index 4. Opportunity Cost Index ©. None of the above21. 28, 29. 30. The process of buying out a significant portion of the equity of an unlisted company by an investor or a group of a sees Earning powe: a b, ce d. e estors in called: Bought Out Deals Hostile Takeover Private Placement Initial Public Offering None of the above a measure of: Measuring Gross Margin Profit hefore Tax Operating Profitability Profit after Tax None of the above ‘The ultimate test of liquidity is the ability of the company: .. To meet its current obligations To maintain regularity in production To achieve equality in current assets and current liabilities, To raise equity as and when required €. None of the above ‘The abbreviation CAS stands for: a b, c 4. e. Central Accounting System Current Asset Standards . Chartered Accounting System Credit Authorization Scheme . None of the above END OF Part APart-B & C TOTAL MARKS: 70 (MAXIMUM TIME: 2% HOURS INSTRUCTIONS TO CANDIDATES 1. Answer Part B & Part C in SINGLE ANSWER BOOKLET 2. Write your enrollment number on the first page of the only. swer book at the space provided All ough work must be done on any blank pa Pencil should not be used for answering. The unused portion of the answer book must be boldly crossed prior to submitting Attempt all questions in the answor book. see ae Marks are indicated against each question. Part B: (50 marks: 120 minutes) Problems testing, Conceptual Understanding and Application Analytical Ability, Caselets, Situational Analysis The Balance sheet of Om Shanti Om Ltd., as on 31° December2004 and 2005 Qu. alll are given below: 31.12.2004 31.12.2005 Share Capital 300000 400000 Capital Reserve 10000 General Reserve 170000 200000 Profit and Loss Account 60000 75000 Debentures 200000 140000 Current Liabilities 120000 130000 Provision for tax 90000-85000 Proposed idend 30000 36000 Unpaid Dividend 4000 970000 _ 1080000 Fixed Assets at Cost 800000 950000 Depreciation 230000 __ 290000 570000 660000 ‘Trade Investment 100000 80000 Current Assets 280000 330000 Preliminary Expenses 20000 10000 970000 1080000During the year 2005, the company- i) Sold Machine for RS.25000, the cost of which was Rs.50000 and depreciation provided was Rs.21000 ii) Provided depreciation Rs.95000. Redeemed 30% of Debentures @103 iv) Sold Trade investments at a profit which was credited to Capital Reserve. ¥) Decided to value stock t cost where previously the practice was to value stock at cost less 10%. The stock according to the book on 313122004 was Rs.54000. The stock on 31.12.2005 was correctly valued at Rs.75000 and vi) Decided to write off Fixed Assets costing Rs.14000, ‘You are required to prepare the statement of Sources and Application of Funds during 2005, showing the changes in working capital. (10 Marks) Q2. With the given information complete the Accounts of Big B Limited Current Asset Ratio 2:1 Closing Stock is 25% of Sales Proposed dividends are 40% of paid up capital Gross profit Ratio is 60% Ratio of current Ii ies to debentures is 2: Transfer to general reserve is equal to proposed dividend Tax rate is 50% of profits Profits carried forward are 10% of Proposed dividend Balance to th redit of general reserve at the beginning of the year is twice the amount transferred to that account from current profits Ti ing and Profit and Loss account for the year ended 31st March 2006 To Opening Stock To Purchases To Other Expenses To Gross Profit To Office and other Expenses = To interest on Debentures 30000 | By Commission 50000 To prvision for Taxation To Net Profit for the year To proposed dividend To Transferto general reserve To Balance C/f 350000 | By Sales 87500 | By Closing Stock By Gross Profit By Balance B/d 70000 By Net profit for the year 40Balance sheet as at 31st December 2006 Assests Paid up Capital 500000 | Fixed Assets Plant and machinery - General Reserve Other Fixed assets cs Bal in the Beginning Addition Current Assets | Stock in trade Profit and loss App A/c Sundry debtors Bank Bal ; 10% Debentures 5 Current Workings should form part of your answer (10 Marks) Q3. _Chetna Corporation requires 200 units of a certain item per year the purchase price per unit in is Rs.30. the carrying cost is 25% of the inventory value and, fixed coSt value per order is Rs.1000 i Determine the EOQ ‘What will be the total cost of carrying and ordering inventory when 4 orders of equal size are placed? (8 Marks) Q4. The earnings per share of the company is Rs.8 and the rate of capitalization applicable is 10%. The company has before it an option of adopting (i)50%, (Gi) 75%, and (iii) 100% dividend payout ratio, Compute the market price of the company’s quoted shares as per Walters model if it can ea a return of (@)15%, (b) 10% and (¢)5% on its retained earnings. (7 Marks) Q5. The following information relates to Mritunjaya Hospitality Limited: ‘Actual Sales ‘May — Rs.1,00,000 | June —Rs.1,20,000 ‘Actual Purchases ‘May — Rs.80,000 Sune = Rs.60,000 Projected Sales July Rs.1,00,000 | August Rs.1,50,000__| September Rs.1,20,000 Projected Purchases | July Rs.90,000__| August Rs.70,000__| September Rs.80,000 ‘Composition of Sales 20 % on Cash Basis | 80 % on Credit Collection Pattern 60% one month after_| 40 % after two month's sales sales "Payment Pattern 50% one month after | 50% two month's after purchases purchases ‘Wages and Salaries will be paid at the rate of Rs.20,000/- per month Other Manufacturing Expenses are estimated to be Rs.12,000/- per month Selling and General Administration Expenses are estimated to be Rs.8,000/-, Rs.10,000/-and Rs.8,000/- for the month of July, August and September respectively. Proceeds from Sale of Fixed Assets are expected to be Rs.20,000/- July. Payment of Tax of Rs.35,000/- is expected to be paid in September. Cash Balance at the start of July was Rs.25,000/-. The minimum cash balance required by the company is Rs.25,000/- Prepare Cash Budget for the months of July 07", August 07’ and September 07’ indicating the surplus / doficit in balance taking into consideration the minimum cash balance. (15 Ma:¥s} Part C: (20 marks: 30 minutes) Case Analysis / Applications of concepts Q.6. The follwing are the financial statements for XYZ Co., for 19X4: XYZ Company Balance Sheet as on 31 December, 19X3 Liabilities & Capital Rs. Assets Rs Creditors 780,000 Cash 70,000 Bills payable 140,000. Debtors 350,000 Outstanding exps. 40,000. Stock 490,000 Provision for tax 100,000 Fixed assets, net 1,050,000 Long - term debt 840,000 Goodwill 140,000 Preference share capital 280,000 Equity share capital 140,000 Reserves 280,000 ~ 2,100,000 ~~ 2,100,000 2XYZ Company Profit and Loss Ale for the year ended 31 December, 19X3 Rs) Sales Cash 2,80,000 Credit 1,120,000 1,400,000" Less: Expenses: Cost of goods sold 840,000 Selling, administrative and general expenses 140,000 Depreciation 98,000 Interest on long - term debt 42,000. 1,120,000 Profit before taxes “280,000 Taxes 140,000 Profit after taxes ~ 140,000 Less: Preference dividend 17,000 Net profit for ordinary shareholders ~~ 123,000 Add: Reserve at | January, 19X3 182,000 305,000 Less: Dividend paid to equity shareholders 25,000 Reserve at 31 December, 19X3 ~~ 280,000 ‘The ratio’s for the years 19X1 and 19X2 for XYZ company and their industry ratios are given below: 1319X1 19x2 Industry ‘Current ratio 2.54 2.10 2.30 Acid — test ratio 1.10 0.96 1.20 Debtors turnover 6.00 4.80 7.00 Stock turnover 3.80 3.05 3.85 Long — term debt to total 37% 42% 34% capital Gross profit me 38% 41% 40% Net profit margin 18% 16% 15% Return on equity 24% 29% 19% Return on total assets ™M% 6.8% 8% Tangible assets turnover 0.80 0.70 1.00 Interest coverage 10 9 10 (@) Calculate ratios for 19X3 and evaluate the company’s financial posit (b) Using relevant ratios, indicate what decision should be taken in the following situations: (i) XYZ Co. wants to buy material of Rs 70,000 on a three months credit from A. (ii) XYZ Co. offers to sell 70,000 additional shares for Rs 112 per share toa financial institution. (iii) XYZ Co. wants to issue 16% debentures of Rs 300,000 with a ten — year maturity. (20 Marks) [ EN OF THE QUESTION PAPER “