Program: --PGDM Division A, MMS Div (A and B), (Batch-2019-21) 3rd Tri, End term Exam paper, Subject:

Financial Management

K. J. SOMAIYA INSTITUTE OF MANAGEMENT STUDIES AND RESEARCH

Program: -PGDM A, MMS (Division A and B) , 3rd Tri (Batch -2019-21)

Subject: -Financial Management
(End term examination)

Maximum Marks: 50
Duration: 3 Hours
Date: .24th July, 2020
Notes:
1. Question 1 is compulsory and carries 20 marks. Answer any two from the rest

2. Show your working wherever required

Q1. (a)From the following Financial Statements of Manek Ltd, for the years ended 2018 and 2019

Prepare :

a) Comparative Income statement

b) Comparative Balance Sheet
c) Calculate : Current Ratio, Liquid Ratio, Operating cost Ratio, Capital Gearing Ratio and Stock
working Capital Ratio

Balance Sheet as at 31st March

Liabilities 2018 2019 Assets 2018 2019

Equity Share Capital 500,000 500,000 Land 200,000 200,000

9%Preference Share 350,000 350,000 Building 350,000 320,000

Capital
General Reserve 200,000 245,000 Plant 300,000 270,000

17% Debentures 100,000 150,000 Furniture 100,000 140,000

Creditors 150,000 200,000 Stock 200,000 300,000

Bills Payable 150,000 175000 Debtors 300,000 400,000

Tax Payable 100,000 150,000 Cash 100,000 140,000

15,50,000 17,70,000 15,50,000 17,70,000

Profit and Loss Account for the year ended 31st March
Program: --PGDM Division A, MMS Div (A and B), (Batch-2019-21) 3rd Tri, End term Exam paper, Subject: Financial Management

2018 2019 2018 2019

To Cost of Goods Sold 600,000 750,000 By Net Sales 800,000 10,00,000

To Operating
Expenses:

Administrative
30,000 40,000
Selling Expenses
20,000 20,000

To Net Profit 150,000 190,000

800,000 10,00,000 800,000 10,00,000

Q 1 (b) Write a note on Financial Statement analysis and Functional classification of ratios

Q2.(a)

Green Field Ltd , Mumbai has to make a choice between three possible investment projects A,B and c .
The immediate cash outlay for each being Rs.110,000. Each will continue for 5 years and it has been
decided that a discount rate of 12% is acceptable for all the proposals.( 10 marks)

The Cash Flow after Tax (CFAT ) for the three projects are

Year Project A Project B Project C Discounting factor @12%

1 10000 20000 30000 0.8929

2 20000 30000 40000 0.7972

3 30000 50000 35000 0.7118

4 40000 30000 25000 0.6355

5 50000 20000 20000 0.5674

Which project will you recommend and Why

If

a) Projects are Mutually exclusive

b) Projects are independent

Use the following techniques

Program: --PGDM Division A, MMS Div (A and B), (Batch-2019-21) 3rd Tri, End term Exam paper, Subject: Financial Management

1)Net present value

2) Profitability Index

Q2.(b) capital structure and essentials of an optimum capital structure ( 5 marks)

Q.3 (a) Cost sheet of Ankit and company provides the following information: (10 marks)

Particulars Amount per unit (Rs)

Elements of cost:

Raw Material 75

Direct labor 25

Overhead 20

Total cost 120

Profit 80

Selling price 200

The following further particulars are given:

• Raw material is in stock, on average one and half month;
• Material are in process, on average half a month;
• Finished goods in stock , on average one and half month
• Credit allowed to suppliers is one month; Credit allowed to customers is two months;
• Average time lag in payment of wages is 1 ½ weeks and one and half month in overhead
expenses; ¼ the of the output is sold against cash; cash in hand and at bank is expected to be
Rs. 545,000.
You are required to prepare a statement showing the Working Capital needed to finance a level of activity
of 135000 units of production
( WIP at 50% completion stage) Show all calculations in weeks.

Q3 (b) Factors influencing working capital requirement of a firm (5 marks)

Q4 (a)
Karnal and company supplied the following information and requested you to compute the cost of capital
based on book values and market values. Calculate Weighted Average Cost of Capital (WACC) (5 marks)

Source of finance Book value(Rs.) Market value(Rs.) After tax cost(%)

Equity capital 17,00,000 1750,000 12.5

Long term debt 970,000 790,000 8.5

Program: --PGDM Division A, MMS Div (A and B), (Batch-2019-21) 3rd Tri, End term Exam paper, Subject: Financial Management

Short term debt 320,000 320,000 3.5

Q4 (b) Need for balanced investment in inventory and various risks involved in holding inventory (10)

Q 5 Write notes on the following: -

1. Explain the term “buy back of shares”

2. Explain the different types of preference shares

3. Investment and dividend decisions