MBA 2nd Semester

MID Term examinations

August- 2021
(Financial Management)
Time 2 hours Marks - 50

Before answering the questions candidates should ensure that they have
been supplied by the correct and complete question paper. No complaint in
this regard will be entertained after examination.

Attempt all questions.

Section A
Q.1 “Financial management is nothing but managerial decision making in
asset mix, capital mix and profit”. Comment. (10)
Q.2 What is time value of money? Why time value is considered important in
making financial decisions? (5)

Section B

Q.3 The following is the capital structure of Simons Company Ltd. 31/12/2020

Equity shares: 10,000 shares (of Rs.100 each) Rs.10,00,000

10% Preference Shares (of Rs.100 each) Rs.4,00,000
10% Debentures Rs.6,00,000
Rs.20,00,000

The market price of the company's share is Rs.110 and it is expected that a dividend
of Rs.10 per share would be declared after 1 year. The dividend growth rale is 6%:
(i) If the company is in the 40% tax bracket, compute the weighted average
cost of capital (BV).
(ii) Assuming that in order to finance an expansion plan, the company intends
to borrow a fund of Rs.10 lacs bearing 11.67% rate of interest, what will be
the company's revised weighted average cost of capital? This financing
decision is expected to increase dividend from Rs.10 to Rs.12 per share.
 However, the market price of equity share is expected to decline from
Rs.110 to Rs.105 per share. (15)

Section –C Case Study

Case Study: Raj Chemicals supplies chemicals and dyes lo various units in and
around NCR Delhi. The onsite delivery oil chemicals and dyes every month is 2,000
units. The unit sale price is Rs.200. The cost per unit is Rs.100. It is using a tempo
which can canny a maximum of 80 units. The total distance covered in one trip Is
400 kms. The cost of diesel in the NCR Delhi is Rs. 51 per liter. The average
consumption of diesel is 8 kms per liter."

"Due to increase in demand for dyes for industrial use, Raj Chemicals has an
opportunity to make and deliver 2,500 units per month. To cater to the Increased
demand, the company is contemplating buying a mini truck with a capacity to carry
165 units. The required mini truck is available from Eicher for Rs.14,00,000. The
tempo being currently used has a book value of Rs.8,00,000. It can be sold for
Rs.4,00,000. The annual salary of the tempo driver is Rs. 6,000 per month. If the
mini truck Is acquired, Raj Chemicals would have to increase his monthly salary to
Rs. 8,000. The consumption of diesel by the truck would average 5 kms per liter. The
annual maintenance cost of the mini truck would be Rs . 8,500 compared to
Rs. 6,200 maintenance cost of the tempo. Raj Chemical uses straight-line method of
depreciation for tax purposes. The tempo has a remaining useful life of 5 years. The
mini truck could serve the need of the Raj Chemicals for next 5 years. The applicable
tax rate is 35 percent. Assume that loss on sale of existing machine can be claimed
as short-term capital loss in the current year Itself."
Nitin Jain, the CEO of Raj Chemicals has asked the CFO, Rahul Joshi, to examine
the financial viability of the proposal to replace the tempo by the mini truck and make
appropriate recommendation in this regard. Assume a required rate of return of 14
per cent. (20)