MBA II SEMESTER Pre ±University Examination MBA 027: Financial Management Time: 2 hours Note: 1) All questions are

compulsory 2) The figure given in the right hand side indicates marks 1(A) Choose the correct option. 1. Shareholder¶s wealth in a firm is represented by a) The number of people employed in the firm b) The book value of the firm¶s asset less the book value of liabilities c) The amount of salary paid to its employee d) The market price per share of the firm¶s common stock 2. WACC stands for a) Weighted average cost of capital b) Working average cost of capital c) West Asian cost of capital d) None of the above 3. What do you understand by levered firm? a) Inclusion of equity b) Inclusion of debt c) Inclusion of preference shares d) None of the above 4.

MM: 80



In the context of the CAPM, in the above diagram Y= Security Market line, X= Return of Security of a firm, so what can be inferred about X a) The security of the firm is overvalued b) The security of the firm is undervalued c) The security of the firm is correctly valued d) None of the above 5. Financial management is concerned with: a) Arrangement of funds b) All aspects of acquiring & utilizing means of financial resources for firm¶s activities c) Efficient management of every business d) None of the above

000/. (with value of Rs.a.000/. a) Increases b) Decreases c) Remains unchanged d) First increase and then decrease. a) Relevance b) Irrelevance c) Both d) None of a & b. has a debt of Rs.00. 200/. . 2 lakh in 10% debentures c. Rs.5. 2 lakh in preference capital with the rate of dividend @ 8% p. The company plans the following financing schemes. What is the value of the levered firm L if it has the same EBIT as an Unlevered firm U. Co has an equity share capital of Rs. 630/. 8.each. 500/. CAPM accounts for: a) Systematic risk b) Unsystematic risk c) Both d) None of a & b 7. a.for expansion cum modernization plans. Rs. d. It wishes to raise the further Rs.1Lakh in common stock and Rs.divided into shares of Rs. a) What is Capital structure? What are the factors affecting the Capital structure of a firm? b) A ltd. what is the effect of increase in the degree of leverage on the value of the firm? a) Increases b) Decreases c) Remains unaffected d) Increases first and then decreases 1(B) Write short notes on: [Any 2] [2x5=10] a) Retained earnings b) CAPM model c) NI approach d) WACC 2. All debt at 10% p. All common stock b.lakh). Market price per share ___________ if more debt is used in NI approach.lakh b) Rs.770/.100/. tax rebate is 35% under MM approach? a) Rs. 900/.00.lakh c) Rs.lakh 10.700/.1 Lakh in common stock and Rs.a.6. According to NI approach capital structure decision is _____________ to the value of the firm. 9.lakh.3. According to traditional approach.lakh d) Rs.

Rs. 100 each 20.000 each Current liabilities and provisions 40 20 10 20 10 50 150 150 Additional information: (1) Average market price (i) per equity share Rs.000/-.5% cum pref. The corporate tax rate is 50%. and the additional information given compute the weighted average cost of capital. Ltd.50. 125 (ii) per 6% cum. 90 (2) Book value per equity share Rs. [10+10=20] [OR] a) Compare the Traditional Approach and MM Approach in capital structure planning. 1. share Rs. share Rs.000 equity shares of Rs.94 [10 + 10=20] .000. You are required to determine the EPS in each plan and comment on the implications of financial leverage. 102 (iv) per 7% debenture Rs. 100 each Reserves and surplus 10. b) With the following Balance Sheet of Hypothetical Company Ltd. 9. 7% debentures of Rs. in lakhs Assets Fixed assets Less : Depreciation Current assets 100 25 75 75 Rs. 65 (iii) per 9. Liabilities Balance Sheet of Hypothetical Co. pref.1. in lakhs 40. 10 each 1. Assume tax rate 50% and ignore short term funds.000. 18 (4) P/E (125/18) ± 6.000.5% cumulative preference shares of Rs. 6% cumulative preference shares of Rs.The companies expected EBIT are Rs. 150 (3) Average earnings per equity share Rs.

a.000 90. a) What are the differences between NPV and IRR methods? b) Equipment A has a cost of Rs. also give its various sources.000/. a) Distinguish between long term. for six years.and net cash flow of Rs.p. for six years. [5+5+10=20] 4.000/. Company charges depreciation on straight line basis.000 70. what would have been your suggestion? Give reasons for your answer. What are the various factors affecting the dividend policy of a firm? [10+10=20] . Want to install machinery whose cost is Rs. The estimated cash flow before depreciation and tax (CFBT) are as below: Year 1 2 3 4 5 CFBT 60. It has an estimated life of 5 years.3.´-Discuss this statement in context of Walter¶s model. b) Discuss the different concepts of working capital and explain the various factors that affect the need of working capital.000 Evaluate project with: i) Accounting rate of return ii) Payback period method b) In the current stock market scenario.50. Calculate IRR to decide which equipment should be accepted and why? [10 + 10=20] [OR] a) ABC ltd. In case the Sensex would have been around 7000 pts.14.75. A substitute equipment B would cost Rs. whether you will suggest a well established company to go for shares or debentures. What is the importance of long term source of finance.50.p. medium term and short term source of finance.50.a.2.00.000 1.and generate cash flow of Rs. Assuming corporate tax is 40%.000 1. [4+4+2+5+5=20] [OR] ³Investors are indifferent to payment of dividend and retention of profits of a firm.000/-.000/.20.000/. The required rate of return for both the equipments is 11%. Gordon Model and MM model.

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