Question Paper

Exam Date & Time: 28-Nov-2018 (10:00 AM - 01:00 PM)

SRM AP

Final Exam. Nov.2018

Contemporary Issues in Finance [COM 001 - S1]
Marks: 100 Duration: 90 mins.

Sec.A
Answer all the questions.
1) A flexible budget is : (2)

A budget that will be changed at the end of every A budget that A budget that is adjusted to reflect A budget that is
month in order to reflect the actual costs of a comprises variable different costs at different activity constantly being
department. costs only. levels. changed.
2) The term 'budgetary period' relates to: (2)

A specific year for which the budget has The period for which the budget The period in which the budget The subdivisions of the
been prepared. is prepared. is finalised. main budget.
3) A company has sales of 2,600 units. There are 1,400 units of opening stock while the closing stock is planned to be 1,800 units. What production is (2)
needed to satisfy sales?

3000
2200 Units. 2600 Units. 2437 Units.
Units
4) Which of the following will not appear in a cash budget? (2)

Machinery bought on hire

Sales revenue. Wages. Depreciation of machinery.
purchase.
5) When a production budget is being prepared the quantity that needs to be produced is calculated by the following equation: (2)

Opening stock less quantity sold Opening stock less Opening stock plus quantity sold Quantity sold plus closing stock less
plus closing stock. quantity sold. plus closing stock. opening stock.
6) When a firm's cost structure consists principally of fixed costs: (2)

It is said to have a great Those costs consist of rent, depreciation, direct labor, The firm might be a factory with All of the
deal of operating leverage. management salaries, direct materials, and utilities. many people and few machines. above.
7) If a firm's EBIT changes by 20% and it has a degree of financial leverage (DFL) of 2.5, what is the expected change in earnings per share (EPS)? (2)

20% 40% 50% 60%

8) Total portfolio risk is : (2)

Equal to systematic risk plus Non- Equal to avoidable risk plus Equal to systematic risk plus Equal to systematic risk plus
diversifiable risk. diversifiable risk. unavoidable risk. diversifiable risk.
9) ..................is the variability of return on stocks or portfolios not explained by general market movements. It is avoidable through diversification. (2)

Standard
Systematic risk. Unsystematic risk. Coefficient of variation.
deviation.
10) Time value of money indicates that (2)

A unit of money obtained today is worth A unit of money obtained today is worth There is no difference in the value of None of
more than a unit of money obtained in less than a unit of money obtained in money obtained today and tomorrow. the
future. future. above.

Sec.B
Answer 6 out of 9 questions.
1) Define Risk and differentiate between Systematic and Unsystematic Risk. (10)

2) (10)

Given Below the following data of two companies.

Particulars A Ltd. B. Ltd.
Sales 4,00,000 3,50,000
Variable Cost 40% of Sales 40% of Sales
Fixed Cost 25,000 30,000
Interest 1,40,000 80,000
Calculate degree of operating leverage and financial leverage.
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 Calculate degree of operating leverage and financial leverage.
3) The Balance Sheet of Punjab Auto Limited as on 31-12-2018 is as follows: (10)

Equity & Liability Rs. Asset Rs.

Equity Share Capital 40,000
Plant and Machinery
Capital Reserve 8,000 24,000
Land and Building
8% Loan on Mortgage 32,000 40,000
Furniture and Fixture
Creditors 16,000 16,000
Stock
Bank Overdraft 4,000 12,000
Debtors
Taxation: 12,000
Investments (Short-
Current 4,000 4,000
Term)
Future 4,000 12,000
Cash in Hand
Profit & Loss A/c 12,000
1,20,000 1,20,000

From the above, compute (a) Current Ratio, (b) Quick Ratio, (c) Debt-Equity Ratio, and (d)
Proprietary Ratio.
4) The following Trading and Profit and Loss Account of Delta Ltd. For the year 31-3-2018 is given. (10)

Particular Rs. Particular Rs.

Opening Stock 76,250
Purchases 3,15,250
Sales 5,00,000
Carriage and Freight 2,000
Closing Stock 98,500
Wages 5,000
Gross Profit b/d 2,00,000
5,98,500 5,98,500

Administration Exp. 1,01,000 Gross Profit b/d 2,00,000

Selling & Dist. Exp. 12,000 Non-Operating Incomes:
Non-Operating Exp 2,000 Interest on Securities 1,500
Financial Exp. 7,000 Dividend on Shares 3,750
Net Profit c/d 84,000 Profit on Sale of Shares 750

2,06,000 2,06,000

Calculate:
1.)Gross Profit 2.) Expenses Ratio 3.) Operating Ratio
4.)Net Profit Ratio 5.) Operating Profit Ratio 6.) Stock Turnover Ratio
5) The expenses budget for production of 10,000 units in a factory are furnished below: (10)

Particulars Per Unit ($)

Materials 70
Labour 25
Variable Factory Overheads
20
($100,000)
Fixed Factory Overheads 10
Variable Expenses 5
Selling Expenses (10% Fixed) 13
Distribution Expenses(20% Fixed) 7
Administration Expenses ($50,000) 5
Cost of Sale Per Unit 155
You are required to prepare a flexible budget for the production of 8,000Units.
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6) From the estimates of income and expenditure, prepare cash budget for the months from April to (10)

June.
Office Exp. Selling Exp
Month Sales (Rs.) Purchases(Rs.) Wages(Rs.)
(Rs.) (Rs.)
Feb 1,20,000 80,000 8,000 5,000 3,600
March 1,24,000 76,000 8,400 5,600 4,000
April 1,30,000 78,000 8,800 5,400 4,400
May 1,22,000 72,000 9,000 5,600 4,200
June 1,20,000 76,000 9,000 5,200 3,800

a. Plant worth Rs. 20,000 purchase in June 25% payable immediately and the remaining in two
equal instalments in the subsequent months.
b. Advance payment of tax payable in Jan and April Rs 6,000.
c. Period of credit allowed by suppliers 2 months and to customers is 1 month.
d. Dividend payable Rs. 10,000 in the month of June.
e. Delay in payment of wages and office expenses 1 month and selling expenses ½ month.
Expected cash balance on 1st April is Rs. 40,000.

7) The Village of Somonauk wants to accumulate $70,000 for the construction of a veterans (10)

monument in the town square. At the beginning of the current year, the Village deposited $47,811 in
a memorial fund that earns 10% interest compounded annually. How many years will it take to
accumulate $70,000 in the memorial fund?

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8) Differentiate Between Operating and Financial Leverage. (10)

9) What does the following diagram shows regarding diversification of risk focusing on correlation (10)

between stocks, when we combine the stock W and Stock M to create a portfolio.

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 Sec.C
Answer all the questions.
1) Given below are the likely returns in case of shares of VCC Ltd. and LCC Ltd. in the various (20)

economic conditions. Both the shares are presently quoted at Rs. 100 per share.

Economic Returns of Returns of

Probability
Conditions VCC Ltd. LCC Ltd.
High Growth 0.3 100 150
Low Growth 0.4 110 130
Stagnation 0.2 120 90
Recession 0.1 140 60

Which of the two companies are risky investments?

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