Reg. No.: Ela] Question Paper Code: 70311 M.B.A. DEGREE EXAMINATION, MAY/JUNE 2013, Second Semester BA 9222/BA 922/UBA 9122/1048 MB 202 — FINANCIAL MANAGEMENT (Regulation 2009/2010) Time : Three hours Maximum : 100 marks 10. Answer ALL questions, PART A — (10 x 2 = 20 marks) What is the scope of financial management? Current normal P/E = 15/1 Current earnings per share Rs. 1.20 Find out the current intrinsic value. What is Time value of money? What is Capital budgeting? What do you mean by financial leverage? Explain the concept of scrap dividend. What are the types of working capital? What are the significance of factoring? at Explain the role of Indian capital market. What are the merits of lease financing?AL 12, 13. fa) (b) (a) ) (a) PART B— (6 x 16 = 80 marks) Explain the role of financial manager. Or What happens to the value of perpetuity when interest rates increase? What happens when interest rate decrease? ‘A firm is considering two investment projects, project A requires a net cash outlay of Rs. 6,000. B requires Rs. 5,000. Both projects have an estimated life of three years. The net cash flow have been estimated as for project A year 1, a 0.40 chance of Rs. 2,000 and a 0.60 chance of Rs. 3,000 year 2, chance of Rs. 4,000 and a 0.70 chance of Rs. 2,000 year 8, a 0.50 chance of Rs. 2,200. For project B, year 1, a 0.30 chance of Rs. 1,000 and 0.70 chance of Rs. 2,000 year 2, a 0.20 chance of Rs. 2,000 and a 0.80 chance of Rs. 1,000 year a 0.40 chance of Rs. 2,000 and (0.60 chance of Rs. 4,000. Assume a 10 percent discount rate. Which project should be accepted and why? Or A company is considering two mutually exclusive projects. Both require an initial cash outlay of Rs. 10,000 each and have a life of five years. The company’s required rate of return is 10% and pays tax at 50% rate. The projects will be depreciated on a straight-line basis. The before taxes cash flow expected to be generated by the projects are as follows Before tax cash flow (Rs.) Project 1 2 3 4 5 A 4000 4000 4000 4000 4000 B 6000 3000 2000 5000 ©5000 Calculate for each project (i) the payback (ii) the ARR (iii) the NPV (iv) IRR which project should be accepted and why? ‘A.company needs Rs. 5,00,000-for construction of a new plant. The following three financial plants are feasible (The company may issue Rs. 50,000 ordinary shares at Rs. 10 per share. (i) ‘The company may issues 25,000 ordinary shares at Rs. 10 per share and 2500 debentures of Rs. 100 denomination bearing a 8% rate of interest. 2 7031114. 15. (b) (a) b) @) ) Gi) ‘The company may issue 25,000 ordinary share at Rs. 10 per share and Rs, 2,500 preference share at Rs. 100 per share bearing a rate of dividend. If the company’s earnings before interest and taxes are Rs. 10,000, Rs. 20,000, Rs. 40,000, Rs. 60,000 and Rs. 1,00,000. What are the earnings per share under each of the three financial plans? Which alternative would you recommend and why? Determine the indifference points by formulating and solving graphically. Assume a corporate tax rate 50%. Or Distinguish between operating and financial leverage. Explain the scope of operating and financial leverage analysis for a financial executive in corporate profit and financial structure. What are the factors to be determining working capital management? Explain, Or Prepare an estimate of working capital requirement from the following information of a trading concern : () Projected annual sales ~ 1,50,000 units Gi) Selling price Rs. 10 per unit. (iil) Percentage of net profit as sales 30. (iv) Average credit period allowed to customers ~ 10 weeks (v) Average credit period allowed to supplies ~ 6 weeks (vi) Average stock holding in terms of sales requirement — 10 weeks (vii) Allow 15% for contingencies. Briefly trace the development of venture capital in India. Or A firm proposes to lease on asset of Rs. 20 lakhs. The annual, end-of-the- year, lease rentals will be Rs. 5 lakh for 5 years. The firm is not in a position to pay tax for next 5 years. The depreciation rate (WDV) is 25% p.a. The lesser's marginal tax rate is 35%. Calculate the net present value of lease to the lessee and the lessor. How can both benefit from the deal? Show your computations. Assume that the lessee's post-tax borrowing rate is 14%. an 3 70311