Course Code : MBT 551 KOLP/RW – 19 /9207

First Semester Master of Business Administration ( CBCS ) Examination

FINANCIAL MANAGEMENT

Time : 3 Hours ] [ Max. Marks : 60

Instructions to Candidates :—
(1) All questions carry marks
(2) Use of PVF , PVAF , CVF
(3) Due credit will be given
(4) Make suitable assumption
as indicated against them.
and CVAF tables are allowed.
to neatness and adequate dimensions.
wherever necessary.

1. (a) Explain effective rate of interest. 2(CO1)

(b) Calcualte the PV of annuity of Rs. 25000/- received annually for 4 years,
when discounting factor is 10%. 2(CO1)
(c) Rs. 1000/- have been invested for 4 years at an interest of 10% p. a.
compounded quarterly ? Find the value at the end of the 4th year.
2(CO1)
(d) What is the difference between simple interest and compound interest ?
2(CO1)
(e) Ram has invested Rs. 3000/- for three years at 20% p. a. compounded
annually. Shyam has invested Rs. 3000/- at 18% p. a. compounded
semi – annually for 3 years. Who will get more at the end of three
years ? 2(CO1)

2. (a) Find out the WACC :

Ke = 12% ; Kd = 10% ; Kp = 11%. The total equity capital of
the company is Rs. 1,00,000/-, Preference share capital is Rs. 50000/-
and Debenture capital is Rs. 1,00,000/-. 5(CO2)
(b) Explain the concept of WACC. Why is it a better indicator of cost of
capital ? 5(CO2)

KOLP/RW - 19 /9207 Contd.

3. From the following data calculate the percentage change in earning per share if sales
are increased by 5%.
EBIT Rs (in lakhs) 1120
PBT Rs (in lakhs) 320
Fixed Cost Rs (in lakhs) 700 10(CO3)

4. Details regarding three companies are as follows :

A Ltd. B Ltd. C Ltd.
r = 15% r = 10% r = 8%
Ke = 10% Ke = 10% Ke = 10%
E = Rs 10 E = Rs 10 E = Rs 10
Using Walter's model calculate :
Calculate the value of an equity share of each of these companies when dividend payout
is
(a) 20% ; (b) 50% ; (c) 0%. 10(CO4)

5. From the following data calculate the operating cycle for each of two years and comment
on the increase / decrease :
Year 1 (Rs in Lakhs) Year 2 (Rs in Lakhs)
Raw materials 20 27
Work – in – Progress 14 18
Finished goods 21 24
Purchases 96 135
Cost of goods sold 140 180
Sales 160 200
Creditors 16 18
Debtors 32 50
Assume 360 days for computational purposes. 10(CO5)
OR
6. The concept of Operating cycle is the basis for further calcualtions. Justify the statement.
10(CO5)

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7. Zenith industries Ltd are thinking of investing in a project costing Rs. 20 lakhs. The
life of the project is 5 years and the estimated salvage value is zero. Straight line
method of depreciation is followed. Tax rate is 50%. The expected cash flows before
tax are as follows :
Year 1 2 3 4 5
Estimated cash flow before depreciation and tax (Rs lakhs) 4 6 8 8 10
Your are required to determine the
(i) Payback period ; (ii) NPV at 10@ cost of capital. 10(CO6)
OR
8. Justify your stand on "IRR is better technique than Profitability Index for evaluating capital
budgeting proposals". 10(CO6)

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