Reg. No. : Question Paper Code: KJ1111 M.B.A. DEGREE EXAMINATION, FEBRUARY/MARCH 2017. Second Semester (Common to All Branches) DBA 7204 — FINANCIAL MANAGEMENT (Regulations 2013) ‘Time : Three hours Maximum : 100 marks Answer ALL questions. PART A— (10 x 2 = 20 marks) 1. State the features of financing and investment decisions. 2. What do you mean by risk return trade off? 3. What is IRR? 4. A firm intends to issue 1,000. 10% debentures each of Rs. 100. What is the cost of capital if the firm desires to sell at 5% premium? The tax rate applicable to the profits of the company is 50%. 5. _ What is reverse stock eplit? 6. What is capital rationing? 7. From the following figures. Calculate EOQ Annual consumption of material = 4,000 kg Cost of buying per order =Rs.5 Cost per unit = Rs. 2 per kg Storage and carrying cot = 8% on average inventory 8. Calculate the working capital from the following information : Land and Building Rs. 1,50,000. Plant Rs. 1,40,000. Stock Rs. 60,000. Debtors Rs. 80,000. Cash Rs.40,000 Creditors Rs. 30,000 and Bills payable Rs. 20,000. 9. What is factoring? 10. Distinguish between financial and operating lease.i 12. @) ) (a) (b) PART B— (5 x 16 = 80 marks) Answer ALL questions, @ ~ Explain the role of financial function in the modern business enterprise. (i) Discuss the broad areas of financial decision making. (8 + 8 = 16) Or @ The current dividend on an equity’share of CC Ltd. is Rs. 3.The present growth rate is 50 percent. However, this will decline linearly over a period of 10 years and then stabilize at 12 percent. ‘What is the intrinsic value per share of CC Ltd? If investors require a return of 16 percent? i) Explain the important factors determining the option values. (8+8= 16) ‘The expected cash flows of a project are as follows: Years Cash flow Rs, 0 €1,00,000) 1 20,000 2 30,000 3 40,000 4 50,000 5 30,000 ‘The cost of capital is 12 percent. Calculate the following: @ Payback period Sere i) Discounted payback period (ii) Net present value (NPV) (iv) Benefit cost ratio. (84+3+7+3=16) Or A firm hag the following capital structure, and after the costs for the different sources of funds used: Sources offunds Amount Proportion After-tax cost Rs. % % Debt 20,00,000 20 45 Preference shares —_10,00,000 10 9.00 Equity shares 30, 00,000 30 11.00 Retained earnings __40,00,000 40 10.00 100 100% Compute the weighted average cost of capital. (16) 2 KJ111113. 14, 16. @) © @) © (a) ) (i) _ Explain the motives for holding cash in the business. (i) Explain the determinants of dividend policy in a fast growing company. Should there be a dividend freeze? (8+8=16) Or State MM’s proposition. Explain how the arbitrage mechanism works. Give example. (6+6+4=16) ‘The capital structure of XYZ Ltd consists of an ordinary share capital of Rs. 10,00,000 (shares of Rs. 100 par value) and Rs. 10,00,000 of 10% debentures. Sales increased by 20% from 1,00,000 units to 1,20,000 units; the selling price is Rs.10 per unit: variable cost amounts to Rs. 6 per unit and fixed expenses amount to Rs. 2,00,000. ‘The income tax is assumed to be 50 percent. Compute: () The percentage increase in earnings per share (ii) The degree of financial leverage at 1,00,000 units and 1,20,000 units (ii) The degree of operating leverage at 1,00,000 units and 1,20,000 units. Comment on the behaviour operating and financial leverages in relation to increase in production from 1,00,000 units to 1,20,000 units. (a6) Or Following information are available about a firm: Expected value of net operating incomes = Rs. 3,00,000. Debt of Rs. 8,00,000 at 12% annual interest. Equity capitalization rate is 15%. Equity share capital = Rs. 12,00,000. What will be the impact of the following actions on the valuation and Ko. ( If the firm raises further debt of Rs. 4,00,000 at 12% and the net operating incomes are expected to increase by Rs. 60,000 and (i) With the increase in leverage, the equity capitalization rate increases to 18%. (8+8= 16) Describe the nature of short-term and long-term requirements of finance ina business and the sources from which they can be arranged. (16) Or Write short notes on: ( Bonus shares (i) Venture Capital » (ii) New Issue Market (iv) Commercial paper. (44+44+4+4516) 3 KJ1111* Reg. No.: Question Paper Code: K1111 M.B.A. DEGREE EXAMINATION, AUGUST/SEPTEMBER 2016. Second Semester DBA 7204 ~ FINANCIAL MANAGEMENT (Common to ALL branches) (Regulations 2013) ‘Time : Three hours ‘Maximum : 100 marks SP Agape w PP uu. Answer ALL questions. PART A—(10 x 2= 20 marks) What is a perpetual bond? How is it valued? What do you mean by ‘time value of money’? List the stages of capital budgeting process. Explain the concept of IRR. What is leverage? Mention different types of leverages. List the factors affecting the dividend policy of a company. Distinguish between Gross and Net working capital. What is commercial paper? Distinguish between hire purchase and leasing. What is primary market? PART B — (6 x 16 = 80 marks) (a) What are the major finance functions? Explain the three major decisions taken by finance functions. we Or (b) Distinguish the concept of risk in the context of a single asset and portfolio of assets.12. (a) (b) 13. (a) ) From the following information, calculate the Net Present Value of the two projects and suggest which of the two projects should be accepted at ‘discount rate of 10 percent. Project X Project Y Initial Investment Rs. 20,000 Rs. 30,000 Estimated Life Syears SB years Serap value Rs. 1,000 Rs. 2,000 ‘The profits before depreciation and after taxation (cash flows) are as follows : Year1 Year2 Year3 Year4 Year5 Project X 5000 10000 10000 3000 2000 Project ¥ 20000 10000 5000 3000 2000 Or XYZ Ltd. issues 20,000, 8% preference shares of Rs. 100 each. Cost of jasue is Re. 2 per share. Calculate cost of preference share capital if these shares are issued G) at par, (i) at a premium of 10% and (iii) at a discount of 6%. From the following data, calculate the Market Price of a share of ABC Ltd., under () Walter's formula and (i) Dividend growth model. EPS=Rs. 10 DPS=Rs.6 ke Or 18% r= 25% Retention ratio (b) = 45% Calculate operating leverage and financial leverage under three situations A, B and C and Financial plans 1, 2 and 3 for the following information. Installed capacity (units) 1,200 ‘Actual production and sales (units) 800 Selling price per unit (Rs.) 16 Variable cost per unit (Rs.) 10 Fixed costs (Re.) Situation A 1,000 Situation B 2,000 Situation C 3,000 Capital Structure Financial Plans Year! Year2 Year3 Equity Rs. 5,000 Rs. 7,500 Rs. 2,500 Debt Res. 5,000 Rs. 2,500 Re. 7,500 Cost of debt (for all plans) 12% 2 Kll1114. 15. (@) © (a) ) ‘The Board of Directors of Aravind mills limited requests you to prepare a Statement showing the Working Capital requirements for a level of activity of 30,000 units of output for the current year. The cost structure for the company’s product for the above mentioned activity level is given below. Cost per unit (Rs.) Raw materials 20 Direct labour 5 Overheads 15 Total 40 Profit 10 Selling price 50 (Past experience indicates that raw materials are held in stock, on an average for 2 months. (i) Work in progress (100% complete in regard to materials and 50% for labour and overheads) will be half a month's production. (iii) Finished goods are in stock on an average for 1 month. (iv) Credit allowed to suppliers : 1 month. () Credit allowed to debtors : 2 months. (vi) A minimum cash balance of Rs. 25,000 is expected to be maintained. Prepare a statement of working capital requirements. Or Explain the major determinants of cash and inventory components of Working Capital? List and explain different sources of long term finances for companies in India. Also mention the factors influencing each source in financing the requirements of a company? Or Briefly explain the features of New Issue Market, SEBI guidelines, Pricing system and list of activities involved in case of an IPO? 3 KiReg. No.: Question Paper Code : J1191 M.B.A. DEGREE EXAMINATION, AUGUST/SEPTEMBER 2016. (From Academic Year — 2015 — New Question Paper Pattern) Second Semester DBA 7204 — FINANCIAL MANAGEMENT (Common to all branches) (Regulations 2013) ‘Time : Three hours Maximum : 100 marks Answer ALL questions. PART A — (10 x 2= 20 marks) 1. State the significance of investment decision. 2. Ifyou invest Rs. 5,000 today at a compound interest of 9 per cent, what will be its future value after 75 years? 3. How would you compute cost of retained earnings? \ 4. What is profitability index? Define financial leverage. 6. _ Differentiate bonus dividend and stock split. 7. What is meant by cash conversion cycle? 8. What is meant by commercial paper? 9. Who are underwriters? 10. Explain about convertible debentures.11, 12, (@) ) (a) @ i) @ Gi) PART B — (6 x 13 = 65 marks) Explain the functions of finance. In what ways is the objective of wealth maximization superior to profit maximization? @ Monisha deposited at the end of each year Rs. 500, Rs. 900, Rs. 1,400, Rs. 1,900, Rs. 2,400 in the savings bank account for 5 years. Calculate her future series of deposits if the bank pays 5% compound rate of interest. @) Or ‘The possible values of return of a stock are 15, 20, 30 and 40 Percentage and the probability of occurrence are 0.2, 0.3, 0.3 and 0.2 respectively. Calculate the stocks (1) Expected return, (2) Standard deviation. @ Elaborate on the various methods of calculating risk of a single asset and of a portfolio. @ A company has to make a choice between two projects namely A and B, ‘The initial capital outlay of two projects are Rs. 1,36,000 and Rs. 2,40,000 respectively for A and B. There will be no scrap value at the end of the life of both the projects. The opportunity cost of capital of the company is 16%. The annual cash flows are as under : Year Project A Project B Discounting factor @ 16% 1 : 60,000 0.862 2 30,000 84,000 0.743, 3 1,32,000 96,000 0.641 4 84,000 1,02,000 0.552 5 84,000 90,000 0.476 ‘You are required to calculate for each project : @ Gi) Payback period Profitability index (iii) Net present value. Or 2 J1191,13. 14. 15. b) XYZ Co supplied the following information. You are required to compute weighted average cost of capital based on book values and market values. Source of Finance Book Values Market Values After Tax Cost Equity Capital 10,00,000 15,00,000 12 Preference share 8,00,000 7,50,000 7 Debenture 2,00,000 2,00,000 4 (@) (@ How do you measure the degree of operating and financial leverage. ) @) ) @ &) Gi) Illustrate with an example. © Define capital structure. Discuss the factors that determine the capital structure requirements of a firm. @ Or Critically discuss Walter’s relevance theory of dividends. Explain the implications of Walter's model. @ Discuss the role of credit policy variables in managing receivables in an organization. © “Management ‘of cash flows plays a very important role cash management”. Discs @ Or Write short notes on @ Collection matrix (ii) Lock box system Gi) EOQ. +444) State the functions of primary market. Differentiate between IPO and Private Placement and book building. Or Discuss in detail different types of leasing. Distinguish, between HP finance and lease finance. 3 J1191PART C — (1x 15 = 15 marks) 16. (a) From the following information of ACX Co., Ltd for the next year, you are required to estimate the working capital needed to finance a level of activity of 2,08,000 units of production after adding a 5 per cent safety contingency. Cost per unit (Rs.) Raw materials 160 Direct labour 60 Overheads (including depreciation of Rs.10) 130 Total cost 350 Profit 50 Selling price 400 Additional Information : Average raw materials in stock : one month Average materials — in — process (50 percent completion state) : Half-a-month ‘Average finished goods in stock : one month Credit allowed by suppliers : one month Credit allowed to customers : two months Time lag in payment of wages : one-and-half-week ‘Time lag in payment of overheads : one-week All sales are credit sales. Cash balance is expected to be Rs. 75,000 You may assume that production is carried on evenly throughout the year and ‘wages and overhead expenses accrue similarly. Or (®) Rajan Ltd. is expecting annual EBIT of 1.00 lakh. The company has Rs. 4.00 lakhs in 10% debentures. The equity capitalisation rate is 12.5%. ‘The company desires to redeem debentures of Rs. 100 lakhs by issuing additional equity shares of Rs. 1.00 lakh. : ‘You are required to calculate the value of the firm and the overall cost of capital. = J1191Reg. No. : J I Question Paper Code: S1111 M.B.A. DEGREE EXAMINATION, FEBRUARY/MARCH 2016. Second Semester DBA 7204 — FINANCIAL MANAGEMENT (Common to all Branches) : (Regulations 2013) Time : Three hours ‘Maximum : 100 marks Answer ALL questions. PART A — (10 x 2= 20 marks) 1. _ State the objectives of finance. 2. What is meant by coupon rate? 3. Name the discounted ash flow techniques. 4. What is meant by opportunity cost? 5. Define Indifference point. 6. List out the reasons for issuing stock split. 7. What is net operating cycle? 8. State the components of credit terms 9. Give a note on Treasury bills, 10. What is meant by venture capital? PART B — (6 x 16 = 80 marks) 11. (@) () Define financial management. Discuss in detail the scope of financial management. ® (i) A company issued (2 years ago) 10 per cent bonds with a face value of Rs.500 for a maturity period of 6 year. Required Rate of Return is (2) 10 per cent, (@) 12 percent; and (8) 8 percent. Determine the value of bond. ® Or(6) @ Explain the relationship between risk and returns. @ (i) . From the given data, answer the questions given below : * Bear Mkt NormalMkt. Bull Mkt. Probability 0.2 05 03 Stock X 20% 18% 50% Stock Y 15% 20% 10% (1) What are the expected rate of returns for stocks X and Y? (4) (2) What are the standard deviations of returns on stock X and Y? (4) (3) Comment on the risk return characteristics of the stocks. (4) 12. (a) The following two project S and R require an investment of Rs.2,00000 each. The income after taxes for these projects is as follows : (16) Year 1 2 3 4 5 6 Project S(Rs.) 80,000 80,000 40,000 20,000 — - Project R(Rs.) 20,000 40,000 40,000 40,000 60,000 60,000 Using the following criteria, determine which of the projects is preferable: (Payback period (i) Average Rate of Return Gii) Present Value approach if the company’s cost of capital is 10 per cent. 1 Or : (b) On the basis of the following information, determine the weighted average cost of capital (Assume tax rate applicable : 40%) (16) @ Equity share capital _10,00,000 Equity Shares of Rs. 100 market values per share Rs. 250. Growth rate of dividend 6%. Dividend/share Rs. 25. (i) Retained earnings _Rs. 5 Crores. Gil) Debentures 1,00,000 debentures of Rs.100 each, Interest rate 15%, current market value : Rs.110 each (iv) Preference capital 50,000 shares of Rs.100 each, dividend rate 11%. Current market price Rs.90 each. 13. (a) What are the various forms of capital structure? Discuss the important factors that should be considered while constructing capital structure of a firm. a6) Or (0) With suitable illustrations, explain the formula proposed by Walter for determining the dividend policy of a firm. Also state the assumptions and arguments proposed by him. (16) 2 sill14, 15. (@) &) (a) ) What is the need for working capital management? Describe the steps involved in estimating the working capital requirement of a firm. (16) @ w@ @ Gi) Or What are ordering and carrying costs? Explain their role in inventory control. ® Efficient cash management will lead to increase in cash flows and slowing cash outflows Discuss. ® Discuss the functions of stock market. ) Why is preference share called as a hybrid source of finance? Explain its types. ®) Or - Explain the concepts of leasing and Hire Purchase. Explain their features and state the advantages of raising finance through leasing and Hire purchasing. (16) 3 siReg. No. : Question Paper Code : 80111 M.B.A. DEGREE EXAMINATION, AUGUST 2015. Second Semester DBA 7204 — FINANCIAL MANAGEMENT. (Common to All Branches) (Regulations 2013) ‘Time : Three hours Maximum : 100 marks Answer ALL questions, PART A — (10 x 2 = 20 marks) 1. Explain the concept of risk. 2. Explain the importance of time value of money. 3. List out the merits of IRR method of capital budgeting. 4. What is meant by weighted average cost of capital? 5. Define optimum capital structure. 6. _ What are stock dividends? 7. What is meant by Trade credit? 8 What are the motives of holding cash? 9. What is meant by Book building? 10, State the advantages of debentures. PART B— (5 x 16=80 marks) 11. (@) Define Financial Management. Discuss the functions of finance and explain its significance in an organization. Or12, 13. (a) ®) (a) @ From the following information calculate a stocks expected return and standard deviation. . (12) Probability of the Rate of Return% Demand O1 50 02 20 04 16 0.2 5 O1 —40 (i) Explain any two methods used for valuing equity shares. cy (®) Compare and Contrast NPV with IRR CO) (i) A firm has two investment opportunities, each costing Rs.1,00,000 and each having an expected profit as shown below. (a2) Year 1 2 3 Ae © Project X 50000 40000 30000 10000 Project Y 20000 40000 50000 60000 ‘The cost of capital for Project A is 10% and for Project B, a risky project it is 15% Compute the NPV and suggest the course of action if: (1) Both the projects are independent (2) Both are mutually exclusive. Or XYZ Company supplied the following information to you and requested to compute weighted Average cost of capital based on book values as well as market values. Source of finance Book Value Market value After Tax Cost Rs.) (Rs.) (%) Equity capital 10,00,000 —15,00,000 ~ 12 Long-term debt —_8,00,000 7,50,000 c Short-term debt —_2,00,000 2,00,000 4 Total 20,00,000 24,50,000 . What is meant by leverage? How would you calculate Financial leverage and ‘Operating leverage? Explain the significance of Financial leverage and Operating leverage analysis for financial structure planning. Or 2 8011114. 15. b) (@) b) @ ) (@ Discuss the various determinants of dividend policies. Co) Gi) What is stock split? Distinguish between a bonus issue and stock split. : ® What is the need to maintain optimum working capital? Discuss the consequences of inadequate or excess working capital. Briefly describe the sources of working capital finance in India. Or Explain how cash management is explained through () Baumol model ® (i) Miller - on model. ® Distinguish between Primary market and secondary market. Describe the methods of floating new issues in the primary market in India, Or Differentiate between leasing and Hire Purchase. Discuss the advantages of leasing. What are its limitations? 3 80111ies) aley Ta] Question Paper Code : 22113 M.B.A. DEGREE EXAMINATION, FEBRUARY/MARCH 2015. Second Semester DBA 7204 — FINANCIAL MANAGEMENT. Regulations 2013) (Common to All Branches) ‘Time : Three hours Maximum : 100 marks Answer ALL questions. PART A — (10 x 2= 20 marks) What do you mean by time value of money? po the What is meant by interest rate risk? Define capital budgeting. What is Profitability index? State the advantages of bonus share. What is financial risk? Why should inventory be held? What do you understand by cash forecast? Sprang What are the features of equity share? 10. Define stock exchange. PART B— (5 x 16 = 80 marks) 11. (@) Define beta factor analysis. How is beta factor analysis used to measure the systematic risk in portfolio investments? Or (b) Consider two companies bonds. A company’s bond pays interest at 12% and B company at 6% p.a. Both have face value of € 1,000 and maturity of 3 years, (What will be the values of bonds if the market interest rate is 9%? Gi) What will be the values of bonds if the market interest rate increases to 12%?12, 13. (a) (b) (a) () ii) Which bond declines more in the value when the interest rate rises? State the reasons? (iv) If the interest rate falls to 6%, what are the values of bonds? (v) If the maturity of two bonds is 8 years (rather than 3 years), what will be the values of two bonds if the market interest rate is (1) 9%, (2) 6% and (3) 12%? Under what circumstances do the net present value and internal rate of return methods differ? Which method would you prefer and why? Or ‘The eash flows of projects X and Y are as follows: Cash flows? Project | Co Ca. C2 Cs NPV @ 10% | IRR x 10,000 | 2,000 | 4,000 | 12,000 | 4,139 26.50% Y_"__| 10,000 | 10,000 | 3,000 | 30,000 | 3,823 37.60% @® Why is there a conflict of ranking? (i) Why should you recommend project X inspite of lower IRR? Time _| Period I | Period 2 | Period 3 PVIFo.x| 0.909 | 0.826 | 0.751 PVIFoix| 0.877 | 0.769 | 0.675 PVIFois| 0.869 | 0.756 | 0.657 PVIFose | 0.769 | 0.591 | 0.455 PVIFow | 0.714 | 0.510 | 0.364 What is capital structure? Explain the important factors that should be considered while determining capital structure. Or ABC Co's capital structure consists of an ordinary share capital of % 10,00,000 (shares of % 10 face value) and 20% debentures of % 10,00,000. Sales increased by 25% from 2,00,000 to 2,50,000 units, © 10 is the selling price per unit, € 6 is the variable cost per unit and 2,60,000 are fixed expenses. The tax rate is 50%. You are required to calculate the following: The percentage increase in EPS. (i)_‘The degree of operating leverage at 2,00,000 and 2,50,000 units. (iii) The degree of financial leverage at 2,00,000 and 2,50,000 units, 2 2211314, 15. (a) (b) (a) b) How would you monitor receivables? Explain the pros and cons of various methods. : Or ‘The turnover of Q Ltd is € 30 lakh of which 80% is on credit. Debtors are allowed one month to clear off the dues. A factor is willing to advance 90% of the bills raised on credit for a fee of 2% a month plus a commission of 4% on the total amount of debts. Q Ltd as a result of this arrangement is likely to save 10,800 annually in management costs and avoid bad debts at 1% on the credit sales, A bank has come forward to make an advance equal to 90% of the debts at an annual interest rate of 18%. However, its processing fee will be at 2% on the debts. Would you accept factoring or the offer from the bank? Discuss the various term loan financing from important financial institutions at national and international level Or What are the different types of financial instruments that are used in the Indian capital market? Explain. 3 22113Time : Three hours 10. 1. Reg. No.: | [ Ee] Question Paper Code : 46111 M.B.A. DEGREE EXAMINATION, AUGUST 2014. Second Semester DBA 7204 — FINANCIAL MANAGEMENT, (Common to alll branches) (Regulations 2013) Answer ALL questions. PART A — (10x 2= 20 marks) Define time value of money and also give a suitable example. Distinguish between bond and share. What is payback method? Explain its drawback. Define inflation. What is share split? Discuss its need. What do you mean by capital structiire? What is factoring? What is commercial paper? Distinguish between lease and hire purchase. What is venture capital financing? PART B— (5 x 16 = 80 marks) (a) Discuss the scope of financial management. Or (») Explain the aspect of risk and return of a portfolio using a suitable example, Maximum : 100 marks12. (@) ABC Corporation has to select the best out of the following three mutually exclusive projects. Suggest the best project to the corporation Rsing net present value method assuming cost of capital as 12%. Ignore taxes, Projects 1 2 3 Initial cost Rs. 80,00,000 70,00,000 ——_90,00,000 Life (in years) 2 12 12 Annual savings in cpecantn oe Rs. 12,00,000 —14,00,000 ——_15,00,000 Annual operating and Mainten eee Rs, 8,00,000 4,00,000 7,00,000 Salvage value after ee Rs. 5,00,000 4,00,000 7,00,000 Or ©) "The initial outlay of a project is Rs. 2,00,000 which will have equal annual net-revenue of Rs. 45,000 for the next 10 years. At the end of the 10" year the salvage value of the project is Rs. 5,000, If the minimum attractive rate of return for the organization is 18%, suggest the organization whether it should select the project using rate of returs method. 13. (a) (i) _ List and explain the forms of dividends. ! Gi) The current market price of an equity share is Rs. 120. The expected dividend at the end of the year I is Re, 20. The constant annual growth rate of the dividend from year 2 onwards is 5%. Find the cost of the equity share. Or ©) @ Whatis operating leverage? G) A company has Rs. 100,000, 10% debentures and 5000 equity shares outstanding. It is in the 35% tax-bracket. Assuming thres levels of EBIT (Rs. 50,000, (2) Rs. 30,000 and (@) Rs. 70,000, calculate the change in EPS (base level of EBIT = Rs. 50,000). 14. (@) List and explain the determinant of working capital. Or (b) The stores of a repair shop has 10 items whose details are shown in the following table. Apply ABC analysis to the stores and identify A clase, B class and C class items. Componentcode Co Coz Cos | Cou Cos Cue Cor Cons. “Con Cyo Price/unit (Rs.) 110 3000 225 60 310’ 7000 500 1000 7000 800 Units/year 125 40 810 720 425 525 900 90 510 600 2 4611115, (@) @ Discuss the functions of venture capitalists, (i) What are the types of venture capital firm? Explain them in brief, Or () List and explain the sources of long term finance. 46111