hitp://www.rtmnuonline.com NRT/KS/19/5685, .) Examination Master of Business Administration (M.B.A.) Semester—II ( FINANCIAL MANAGEMENT ‘Compulsory Paper—2 (lective) Time : Three Hours] {Maximum Marks : 80 NB. : (1) All questions are compulsory. (2) All questions carry equal marks. 1. (A) “Without adequate finance no business can survive and without efficient financial management no business can prosper and grow.” Comment on this statement outlining the role and scope of financial management. oR (B) What is Debenture ? Explain the merits and demerits of debenture as a source of financing for business 2. (A) Grow-more Company Ltd. has the following book value Capital Structure as on 31 March, 2018 Rs. Equity Share Capital (2,00,000 shares) 40,00,000 11.5% Preference Shares 10.00,000 10% Debentures 30,00,000 '80,00,000 ‘The value of Equity Share of the company is Rs. 20. It is expected that the company will pay next year a dividend of Rs. 2 per equity share, which is expected to grow at 5% p.a. forever Assume Corporate Tax Rate @ 35%. You are required to : @ Compute Weighted Average Cost of Capital (WACC) of the company based on the existing Capital Structure. (ii) Compute the new WACC, if the company raises an additional amount of Rs. 20,00,000 by issuing debt @ 12%. This would result in increasing the expected dividend to Rs. 2.40 per share, the growth rate remain unchanged, but the price of equity share will fall to Rs. 16 per share. OR (B) Bhaskar Manufacturing Company has Equity Share Capital of Rs. 5,00,000 (face value Rs. 100). To meet the expansion programme, the company wishes to raise Rs. 3,00,000 and is having following four alternative sources to raise the funds @ To have full money from the issue of equity shares. (ii) To have Rs. 1,00,000 from equity and Rs. 2,00,000 from borrowing from the financial institution at 10% per annum, Gi) Plan C : Full money from borrowing at the rate of 10% per annum. (iv) Plan D : Rs. 1,00,000 in equity and Rs. 2,00,000 from 8% Preference Shares. ‘The company is having present earnings of Rs. 1,50,000. The Corporate Tax Rate is 50%. Select the suitable plan out of the above four plans to raise the required funds. cls—465 1 (Contd) http:/;www.rtmnuonline.com3. (A) Wealth Bridge Company is contemplating to purchase a machine. Two Machines (B) c1s—46s, hitp://www.rtmnuonline.com and Bare available, each costing Rs. 5,00,000. In comparing the profitability of the machines, a discounting rate of 10% is to be used and machine is to be written off in five years by straight line method of depreciation with nil residual value, Cash inflows after tax are expected as follows : Year [ Machine A | Machine B 1,50,000 50,000 2,00,000 1,50,000 2,50,000 2,00,000 1,50,000 3,00,000 = 1,00,000 2,00,000 Indicate which machine would be profitable using the following methods of ranking investment proposals @ Payback period Rwne Gi) Net Present Value considering discounting rate @ 10% ii). Profitability Index @ discounting rate of 10%. The discounting factor @ 10% are Year 1 2 3 4 3 Discounting Factor | 0.909 | 0.826 | 0.751 | 0.683 | 0.621 OR Eam Bridge Company Ltd, wants to install a new machine in the place of an existing old one which has become obsolete, The company made extensive enquiries and from the replies received, short listed two offers. The model differs in cost, output and anticipated net revenue. The estimated life of both the machines is five years. There will be only negligible salvage value at the end of the fifth year. Further details are as follows Year [Anticipated Cash inflow in Rs. Machine A Machine B 1 = 10,00,000 2 5,00,000 14,00,000 3 20,00,000 16,00,000 4 14,00,000 17,00,000 5 6,00,000 8,00,000 ‘The cost of investment for Machine A is Rs. 25,00,000 and for Machine B Rs. 40,00,000. The company’s cost of Capital is 16%. You are required to make an appraisal of the two offers and advise the firm using the following (Net Present Value @ 16% discounting rate Gi) IRR of the two offers ‘The present value of Re. 1 16% 18% 20% 1 0.862 0.847 0.833 2 0.743 0.718 0.694 3 0.641 0.609 0.579 4 0.552 0.516 0.482 3 0.476 0.437 0.402 2 NRMKS/19/5685 http:/;www.rtmnuonline.com4 hitp://www.rtmnuonline.com (A) On 1* April, 2018 the Board of Directors of Crypto Bridge Company Ltd. wishes to know the amount of Working Capital that will be required to meet the programme of activity they have planned for the year. The following information is available (@ Issued and paid up Capital Rs. 2,00,000. Gi) 5% Debentures (Secured on Assets) Rs. 50,000. Gi) Fixed Assets valued at Rs. 1,25,000 on 31% March, 2018. (iv) Production during the previous year was 60,000 units, it is planned that this level of activity should be maintained during the present year. (v)_ The expected ratios of cost to selling price are Raw Material 60%; Direct Wages 10% and Overhead 20%. (vi) Raw Materials are expected to remain in stores for an average of two months before these are issued for production. (vii) Each unit of production is expected to be in process for one month (vii) Finished Goods will stay in warehouse for 3 months. (ix) Creditors allowed credit for 2 months from the date of delivery of raw materials. (&)_ Credit allowed to debtors 3 months from the date of despatch. (ai). Selling price per unit Rs. 5. (sii) There is regular production and sales cycle. Prepare : @ Working Capital requirement forecast (i) An estimated Profit and Loss Account and Balance Sheet at the end of the year. OR (B) The following information has been extracted from the records of Arthdoot Company Ltd. : Product Cost Sheet Particulars Rs, per unit Raw Materials 45.00 Direct Labour 20.00 Overheads 40.00 Total Cost 105.00 Profit 15.00 Selling Price 120.00 (@ Raw Material are in stock on an average of two months. Gi) The material are in process on an average 4 weeks. The degree of completion is 50% (assume 50% for all elements). cis—465 3 NRDKS/9/S685 http:/;www.rtmnuonline.comhitp://www.rtmnuonline.com (ii) Finished Goods Stock on an average is for one month. (iv) Time lag in payment of Wages and Overheads is 1’ weeks (v) Time lag receipts of proceeds from debtors is 2 months (at Sales Price). (vi) Credit allowed by suppliers is one month. (vii) 20% of the output is sold against Cash. (vii) The company expects to keep a cash balance of Rs. 1,00,000. (i) Take 52 weeks per annum. ‘The company is planning for a manufacture of 1,44,000 units in the year. You are required to prepare a statement showing the Working Capital requirement of the company. 3. Write notes on (A B (©) @) cis—465 ‘Commercial Paper ‘Under Capitalisation Accounting Rate of Retum Receivables Management. 4 NRDKS/9/S685 http:/;www.rtmnuonline.com