Seat Number

3mrr -104
CIIIIIJ
306: SPECIALIZATION-III (NEW JUNE 2018)
A) Financial Management: Strategic Financial Management
(7236A) (306A)
P. Pages: 2
•••
Time: Three Hours Max. Marks: 60

Instructions to Candidates:
1. Do not write anything on question paper except Seat No.
2. Graph or diagram should be drawn with the black ink pen being used for writing
paper or black HB pencil.
3. Students should note, no supplement will be provided.
4. Answer any three questions from section I & any two questions from section II.
5. Use of simple calculator is allowed.

SECTION-I

1. The sales and EBIT for a company during the year 2018 were ~17,50,000 and 12
~4,50,000 respectively. During that year the expenses on account of interest was
~4,000 and on preferred dividends was ~10,000. These fixed charges are expected to
continue during 2018. for the year company is planning an expansion which will cost
~1,75,000 and expected to increase EBIT to ~5,50,000. The company is considering
the following plans to finance it's expansion:

a) Issue of 5,000 equity shares at ~35 each. The company presently has 40,000
equity shares.

b) Issue ~1,75,000 of 15 year bond @ 8%

c) Issue of additional preference shares @ 8.5% for ~1,75,000.

You are required to calculate EPS for 2019 at the expected EBIT of~5,50,000 for three
financing alternatives.

2. Consider the following information of Ram Ltd: 12

EBIT ~1120 Lakhs

PBT ~320 Lakhs
Fixed cost ~700 Lakhs

Calculate percentage of change in earnings per share, if sales increased by 5%

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3. Ram Ltd, and Laxman Ltd. have the same levels of business risk and their market 12
values and earnings are summarized below.
Particulars Ram Ltd. Laxman Ltd.
Market Values:
Equity ~6,00,000 ~3,00,000
Debt ~2,50,000
Earnings ~90,000 ~90,000
Less: Interest ~22,000
~90,000 ~68,000
Calculate the post-tax of cost of equity, cost of debt and weighted average cost of
capital of both the companies. Assume that the income tax rate on the company is
35% and the additional tax on dividend distribution is 20%.

4. I Arjun Ltd. is thinking of investing in a project costing ~20,00,000. 12

Life of project = 05 years
Estimated salvage value = a
Tax Rate = 50%
Method of Depreciation = Straight line
Expected cashflows before depreciation & tax
Year ~
1 4,00,000
2 6,00,000
3 8,00,000
4 8,00,000
5
You are required to calculate:
a) Payback period of investment
b) Average Rate of return of investment
c) Net present value @ 10% cost of capital.

5. Calculate the market price of share of Karn Ltd under: 12

a) Walter's formula, and
b) Dividend growth model from the following data.
Earning per share ~5
Dividend per share ~3
Cost of capital ~16%
Internal Rate of return on investment 20% Retention ratio 50%

SECTION -II
6. Explain long term and short term sources of finance. 12
7. What do you mean by mergers and acquisitions? Explain kinds of mergers and 12
acquisitions.
8. Explain phases in turnaround management 12

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