Group A

Attempt any six questions (6x10=60)

1. What do you mean by financial management? Explain the role and responsibilities of
financial manager in the Nepalese context. (Chapter 1: Financial management)
2. The prize in last week’s Zebra Lottery was estimated to be worth Rs 40 million. If
you were lucky enough to win, the Zebra will pay you Rs 2 million per year over the
next 20 years. Assume that the first installment is received immediately.
a) If interest rates are 7 percentage, what is the present value of the prize?
b) If the interest rates are 7 percent, what is the future value after 20 years?
c) How would you answers change if the payments were received at the end of each
year? (Chapter : 2 Concept of time value of money)
3. The National Company is faced with the decision of whether it should purchase or
lease a new computer. The computer can be leased on five year contract of Rs 6,000 a
year or it can be purchased for Rs 25,000. The salvage value of computer after the
five year is Rs 2,000. The company uses straight-ling depreciation. The discount rate
applied is it’s after tax cost of debt. The company can borrow at 15 percent and has a
40 percent margin tax rate.
a) Calculate the cost of leasing
b) Calculate cost of purchasing
c) Should the firm lease or purchase computer? (Chapter : 4 Source of finance)
4. Jupiter Company has employed debt capital of Rs 6 million paying interest rate of 5
percent and expected operating earnings (EBIT) amounted to Rs 2 million per year.
The company’s cost of capital is assumed to be constant at 10 percent.
a) Calculate the firm’s market value, value of the firm’s common stock, cost of
firm’s equity and debt-equity ratio using Net Operating Income Approach (NOI)
b) If debt increases from Rs 6 million to Rs 10 million. Calculate the value of the
firm, value of common stock, cost of equity and debt-equity ratio. (Chapter 9:
Capital structure and leverage)
5. A Garment company in Kathmandu uses 12,50,000 square yards of a special kind of
cloth every year in its manufacturing process. The fixed costs of placing and receiving
an order are Rs 2,000. The price of the cloth is Rs 2.5 per square yard and the annual
 cost of carrying this inventory is 20% of the price. The firm maintains 12,500 square
yards as safety stock. The cloth suppliers require a 2-week lead time for the delivery.
Required:
a. What is the EOQ for this cloth?
b. What is the average inventory rupee value, including the safety stock?
c. What is the total cost of ordering and carrying the inventory, including the safety
stock?
d. Using a 52-week year, at what inventory level should an order be placed?
(Chapter 12: Working capital management)
6. The earnings dividends and stock price of Makalu Company are expected to grow at 6
percent per year in the future. The company’s common stock sells for Rs 50 per share,
its last dividend was Rs 5 and a company will pay a dividend of Rs 5.30 at the end of
the current year.
a) Using the discounted cash flow approach, what is its cost of retained earnings?
b) If the company’s beta is 1.2, the risk-free rate is 8 percent and the average return
on the market is 14 percent, what will be the firm’s cost of equity using the
CAPM approach?
c) If the firm’s bonds earn a return of 12 percent, what will cost of retained be using
the bond-yield-plus-risk-premium approach? Assume appropriate risk premium is
4 percent. (Chapter 8 : Cost of capital)
7. Write short notes (Any two)
a) Portfolio (Chapter 6: Risk and return)
b) Stock repurchase (Chapter 13: Management of surplus)
c) PBP (Chapter 11 : Capital budgeting)
8. After 5-for-3 stock split, Annapurna Company paid Rs 6 dividend per share which
represents 9% growth, calculate last year’s presplit dividend. Also explain why
company distributes stock dividend? (Chapter 13 : Management of surplus)

Group B
Attempt any two questions but Question 3 is compulsory
(2x20=40)
1. What do you mean by working capital? Explain its importance for Nepalese
organizations. (Chapter 12: Working capital management)
2. Stock A and stock B have the following probability distributions of expected
future returns:
Probability 0.1 0.2 0.3 0.4
Stock A -5% 5 10 15
Stock B -10% 0 15 20
a) Calculate expected return and standard deviation for stock A
b) Calculate expected return and standard deviation for stock B
c) Calculate the coefficient of variation for stock A and stock B
d) Is it possible that most investors might regard stock A as being less risky
than stock B? Explain.
e) What are the covariance and correlation coefficient between on stock A and
stock B? (Chapter 6: Risk and Return)
3. Suppose you are a project manager of a company and you need to recommend
management about investment in two manually exclusive projects A and B.
Both projects have equal initial investment of Rs 225,000 but differ in annual
cash flows over five years of life. Assume that both projects are equally risky
and required rate of return applicable is 10 percent. Following are the cash
flows associated with the two projects.
Year Project A Project B
0 Rs (225,000) Rs (225,000)
1 75,000 75,000
2 75,000 80,000
3 75,000 60,000
4 75,000 85,000
5 75,000 95,000
a) Which project do you recommend according to PBP method? Explain.
b) Which project do you recommend according to NVP method? Explain.
c) Which project do you recommend according to IRR method? Explain.
d) If there is conflict on ranking the projects finally which project do you
recommend and why? (Chapter 11 : Capital budgeting)