03CP27

Global Institute of Business Studies, Bengaluru

Approved by AICTE

Third Trimester PGDM Degree End-Term Examination (ETE), June 2021

Department of Post Graduate Diploma in Management

CORPORATE FINANCE

Duration: 2 Hours Maximum Marks: 50

Section A
Answer any three questions out of 5; each carry 5 marks. (3 X 5 = 15 Marks)
1. Define Financial Management. Explain the objectives of Financial Management.
2. State the difference between DCL and DFL.
3. Write a short note on internal rate of return.
4. A company issued 40,000, 12% Redeemable Preference Share of ₹100 each at a premium of
₹5 each, redeemable after 10 years at a premium of ₹10 each. The floatation cost of each share is ₹2.
You are required to calculate cost of preference share capital ignoring dividend tax.
5. A Company produces and sells 10,000 shirts. The selling price per shirt is ₹500. Variable cost is ₹200
per shirt and fixed operating cost is ₹25,00,000.
(a) CALCULATE operating leverage.
(b) If sales are up by 10%, then COMPUTE the impact on EBIT?

Section B
Answer any two questions out of 3; each carry 10 marks. (2 X 10 = 20 Marks)
6. Write short notes on Inter relationship between investment, financing and dividend decisions.
7. A firm’s details are as under:
Sales (@100 per unit) 24,00,000 Variable Cost 50%
Fixed Cost ₹10,00,000
It has borrowed ₹10,00,000 @ 10% p.a. and its equity share capital is ₹10,00,000 (₹ 100 each)
CALCULATE:
(a) Operating Leverage
(b) Financial Leverage
(c) Combined Leverage
(d) Return on Investment
(e)If the sales increases by ₹6,00,000; what will the new EBIT?
8. A person opened an account on April, 2012 with a deposit of ₹ 20000. The account paid 6% interest
compounded quarterly. On October 1, 2012, he closed the account and added enough additional money
to invest in a 6-month Time Deposit for ₹ 50,000 earning 8% compounded monthly.

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 I. How much additional amount did the person invest on October 1?
II. What was the maturity value of his Time Deposit on April 1, 2013?
III. How much total interest was earned?

Section C
Case Study (Compulsory). (1 X 15 = 15 Marks)
9. The Management of a Company has two alternative proposals under consideration. Project A requires
a capital outlay of ₹12,00,000 and project ‘B” requires ₹18,00,000. Both are estimated to provide a cash
flow for five years:
Project A ₹ 4,00,000 per year and Project B ₹5,80,000 per year. The cost of capital is 10%. Show which
of the two projects is preferable from the view point of (i) Net present value method,
(ii) Present value index method (PI method), (iii) Internal rate of return method.
The present values of Re. 1 of 10%, 18% and 20% to be received annually for 5 years being 3.791,
3.127 and 2.991 respectively.

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