Birla Institute of Technology & Science, Pilani

Work-Integrated Learning Programmes Division

First Semester 2023-2024

Comprehensive Examination
(EC-3 Regular)

Course No. : BA ZG521

Course Title : FINANCIAL MANAGEMENT
Pattern of Exam : TYPED ONLY
Nature of Exam : Open Book
Weightage : 35% No. of Pages =5
Duration : 2 ½ Hours No. of Questions = 6
Date of Exam : 26/11/2023 (AN)
Note:
1. Please follow all the Instructions to Candidates given on the cover page of the answer book.
2. All parts of a question should be answered consecutively. Each answer should start from a fresh page.
3. Assumptions made if any, should be stated clearly at the beginning of your answer.
4. Microsoft Excel is NOT Allowed for Exam.
5. Calculators (Financial/ Scientific/ Basic) are Allowed for Exam.

Q.1 Set [A]

a) Westside Apparels Ltd., has sales of $29 million, total assets of $17.5 million, and total
debt of $6.3 million. If the profit margin is 8 percent, what is ROA? What is ROE? [2]
b) Burroughs Computers, has 7.5 percent coupon bonds on the market that have 10 years left to
maturity. The bonds make annual payments. If the YTM on these bonds is 8.50 percent, what is the
current bond price? [3]

Q.1 Set [B]

a) Aakash Furnitures Ltd., has sales of Rs. 4.10 crores, total assets of Rs. 1.48 crores, and total debt of
Rs. 45 lakhs. If the profit margin is 12 percent, what is ROA? What is ROE? [2]
b) Sperry Computers, has 12 percent coupon bonds on the market that have 15 years left to
maturity. The bonds make annual payments. If the YTM on these bonds is 11 percent, what is the
current price of these bonds? [3]

Q.1 Set [C]

a) Given that Prestige Appliances Ltd. records sales of Rs. 5.20 crores, possesses total assets worth
Rs. 2.10 crores, and has a total debt of Rs. 60 lakhs, and with a profit margin of 15 percent,
determine the Return on Assets (ROA) and Return on Equity (ROE) for the company. [2]
b) Reliance Petrochemicals Ltd., has 15 percent coupon bonds on the market that have 7 years left
to maturity. The bonds make annual payments. If the YTM on these bonds is 12 percent, what is the
current price of these bonds? [3]

Q 2 Set (A)
Given below are the returns of General Air conditioners and LG Corp over the past 6 years:
Year Ending General Air conditioners LG Corp
31 March 2023 8% 16%
31 March 2022 21% 38%
31 March 2021 17% 14%
31 March 2020 -16% -21%
 31 March 2019 9% 26%
31 March 2018 7% 6%
a) Calculate the expected return for General Air conditioners and LG Corp. [2]
b) Calculate the standard deviation for General Air conditioners and LG Corp. [3]

Q 2 Set (B)
Given below are the returns of Google and Microsoft Corporation over the past 6 years:
Year Ending Google Microsoft Corporation
31 March 12% 4%
2023
31 March 14% 6%
2022
31 March 19% -4%
2021
31 March -11% 21%
2020
31 March 7% 18%
2019
31 March -2% 13%
2018
a) Calculate the expected return for Google and Microsoft Corporation. [2]
b) Calculate the variance for Google and Microsoft Corporation. [3]

Q 2 Set (C)
Given below are the returns of Intel Corporation and AMD Corporation over the past 6 years:
Year Ending Intel Corporation AMD Corporation
31 March 2023 18% 5%
31 March 2022 8% 9%
31 March 2021 24% -5%
31 March 2020 -10% 22%
31 March 2019 8% 16%
31 March 2018 -3% 12%

a) Calculate the expected return for Intel and AMD. [2]

b) Calculate the Standard Deviation for Intel and AMD. [3]

Q 3 Set (A)
Jagannath Aeronauticals Ltd (JAL) has 10 million shares of common stock outstanding, 2 million
shares of 5 percent preferred outstanding, and 250,000 $1,000 par, 10 percent semi-annual coupon
bonds outstanding. The stock sells for $45 per share and has a beta of 1.4, the preferred stock sells
for $50 per share, and the bonds have 10 years to maturity and sell for 90 percent of par. The
market return as proxied by S&P 500 returns are 11 percent, T-bills are yielding 5 percent, and the
firm’s tax rate is 30 percent. What is JAL’s WACC? [7]

Q 3 Set (B)
Priya Pickles Ltd (PPL) has 2 million shares of common stock outstanding, 1 million shares of 6
percent preferred outstanding, and 300,000 $1,000 par, 7 percent semi-annual coupon bonds
outstanding. The stock sells for $70 per share and has a beta of 1.8, the preferred stock sells for $40
per share, and the bonds have 15 years to maturity and sell for 80 percent of par. The market return
as proxied by Dow Jones are 12 percent, T-bills are yielding 4 percent, and the firm’s tax rate is 35
percent. What is PPL’s WACC? [7]

Q 3 Set (C)
Mahi Chemicals Ltd (MCL) has 5 million shares of common stock outstanding, 4 million shares of 8
percent preferred outstanding, and 1 Million $1,000 par, 13 percent semi-annual coupon bonds
outstanding. The stock sells for $120 per share and has a beta of 1.45, the preferred stock sells for
$60 per share, and the bonds have 6 years to maturity and sell for 75 percent of par. The market
return as proxied by Russell 2000 is 13 percent, T-bills are yielding 4.2 percent, and the firm’s tax
rate is 25 percent. What is MCL’s WACC? [7]

Q.4 Set (A)

You are the Financial Analyst at Ace Analytics Ltd., which is considering the following two mutually
exclusive projects.
Year Cashflow (Project A) Cashflow (Project B)
0 - Rs. 300,000 - Rs. 40,000
1 Rs. 20,000 Rs. 19,000
2 Rs. 50,000 Rs. 12,000
3 Rs. 50,000 Rs. 18,000
4 Rs. 390,000 Rs. 10,500
5 Rs. 40,000 Rs. 5,500

Whichever project you choose, if any, you require a 15 percent return on your
investment.
a. If you apply the payback criterion, which investment will you choose? Why? [2]
b. If you apply the discounted payback criterion, which investment will you choose? Why? [3]
c. If you apply the NPV criterion, which investment will you choose? Why? [3]
d. Based on your answers in (a) through (c), which project will you finally choose? Why? [1]

Q.4 Set (B)

You are the Chief Financial Officer at Infosys Ltd., which is considering the following two mutually
exclusive projects. All amounts are in Indian Rupees.
Year Cashflow (Project A) Cashflow (Project B)
0 -50,00,000 -42,00,000
1 21,00,000 18,00,000
2 18,00,000 8,00,000
3 15,00,000 6,00,000
4 10,00,000 13,00,000
5 7,50,000 21,00,000
Whichever project you choose, if any, you require a 16 percent return on your
investment.
a. If you apply the payback criterion, which investment will you choose? Why? [2]
b. If you apply the discounted payback criterion, which investment will you choose? Why? [3]
c. If you apply the NPV criterion, which investment will you choose? Why? [3]
d. Based on your answers in (a) through (c), which project will you finally choose? Why? [1]

Q.4 Set (C)

You are the Vice President of Finance at Bajaj Auto Limited, which is considering the following two
mutually exclusive projects. All amounts are in Indian Rupees.
Year Cashflow (Project A) Cashflow (Project B)
0 -42,00,000 -60,00,000
1 18,00,000 25,00,000
2 14,00,000 15,00,000
3 12,00,000 12,00,000
4 11,00,000 16,00,000
5 8,00,000 24,00,000
Whichever project you choose, if any, you require a 13 percent return on your
investment.
a. If you apply the payback criterion, which investment will you choose? Why? [2]
b. If you apply the discounted payback criterion, which investment will you choose? Why? [3]
c. If you apply the NPV criterion, which investment will you choose? Why? [3]
d. Based on your answers in (a) through (c), which project will you finally choose? Why? [1]

Q.5 Set (A)

XYZ Ltd. buys 75000 glass bottles per year. Price of each bottle is Rs.0.90. Cost of purchase is Rs.100
per order. Cost of holding one bottle per year is Rs.0.20. Bank interest is 15% including a charge for
taxes and insurance on the price.
(a) Find out EOQ quantity. [2.5 Marks]
(b) What inventory costs are incurred with this ordering quantity? [2.5 Marks]

Q.5 Set (B)

You are an experienced loan manager at ICICI Bank Small and Medium Enterprises branch at
Chennai. You have been allotted the following two customer files for you to analyze and decide
whether to give a loan or not:

File #1 – Mr. Krishna Kumar Malani is applying for a loan of Rs. 25 lakhs on behalf of his business
Malani Exports Pvt. Ltd. He is the Managing Director of the company. In the recent board meeting
held at Hyderabad it was decided that the company will open a new factory in Hyderabad for which
Mr. Malani is seeking the new loan. Malani Exports has one factory in Bangalore, which is in business
since last 5 years. They had earlier taken a loan of Rs, 15 lakhs from ICICI Bank for their Bangalore
branch and repaid it successfully. The company was never late on its EMI payments relating to the
previous loan. The Bangalore factory is generating a net income of Rs. 40 lakhs per annum. The land
and building of the Bangalore factory valued at Rs. 1.2 Crores has been pledged with the bank as
collateral.

File #2 – Mr. Ramesh Kumar is applying for a loan of Rs. 75 lakhs on behalf of his business Kumar
Granites Pvt. Ltd. He is the Managing Director of the company. In the recent board meeting held at
Chennai it was decided that the company will open a new showroom at Salem, Tamilnadu for which
Mr. Kumar is seeking the new loan. Kumar Granites has one showroom in Chennai, which is in
business since last 3 years. They had earlier taken a loan of Rs. 25 lakhs from ICICI Bank for their
Chennai showroom. The loan is yet to be repaid fully. The company was late a few times on its EMI
payments relating to the previous loan and the management could not give a good reason or
explanation for the late payments. The Chennai showroom is generating a net income of Rs. 10 lakhs
per annum. The Chennai showroom is on rented premises. No property has been pledged with the
bank as collateral.
a) What are the 5 C’s of Credit Analysis? Name and Explain each C succinctly. [2.5]
b) Whom should the bank lend the money based on the 5 C's of Credit Analysis? [2.5]

Q.5 Set (C)

Based on the following financial information,
(a) Calculate the length of the operating cycle [4]
(b) Calculate the length of cash cycle. [1]
Assume 360 days in a year.
Profit & Loss a/c Balance Sheet Data
Data Particulars Beginning of the End of the year
(Rs. Million) year 2022 2022
Sales 900 Inventory 100 120
COGS 820 Debtors 120 150
Creditors 80 110

Q.6. Set (A)

a) What is meant by Asymmetric information? [2]
b) Under the pecking-order theory, what is the order in which firms will obtain financing? Explain
succinctly in a few sentences. [2]

Q.6 Set (B)

a) What is meant by Agency Costs? [2]
b) What is meant by Trade Off Theory? Explain succinctly in a few sentences. [2]

Q.6 Set (C)

a) Outline the reasons as to why a company’s capital structure may be different from its optimal
capital structure. [2]
b) In the context of Dividend Policy, compare and contrast the Bird in Hand theory with Tax
Preference theory? [2]