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Seat No.:
Subject Code:3529203
Enrolment No.
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GUJARAT TECHNOLOGICAL UNIVERSITY
MBA - SEMESTER 2 - EXAMINATION - SUMMER 2019
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Subject Name: Financial Management
Time: 10:30 AM To 01:30 PM
Date:13/05/2019
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Total Marks: 70
Instructions:
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- Attempt all questions.
- Make suitable assumptions wherever necessary.
- Figures to the right indicate full marks.
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Q. No. Question Text and Description Marks
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Q.1 Explain the following terms: 14
- Time Value of Money
- Yield To Maturity
- Permanent Working Capital
- Cost of Capital
- Discounted Pay Back Period
- Leverages
- Price Earning Ratio
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Q.2 (a) What do you mean by Financial Management? Explain its Profit 07
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Maximization and Wealth Maximization objectives in details.
(b) A finance company advertises that it will pay a lump sum of Rs.10,000 07
at the end of 6 years to investors who deposit annually Rs. 1,000. What
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interest rate is implicit in this offer?
OR
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(b) A company is currently paying a dividend of Rs. 2 per share. Dividend 07
is expected to grow at 15% annual rate for 3 years, thereafter at 10%
for next 3 years and after which it is expected to grow at 5% forever. If
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capitalization rate is 9% what is the intrinsic value of share?
Q3 (a) Give the meaning of Leverage and discuss the types of Leverages in 07
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details.
(b) A company belongs to risk class for which capitalization rate is 10%. It 07
currently has outstanding 25000 shares at Rs. 100 each. The expected
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dividend is Rs. 5 per share, net income is Rs. 2,50,000 and investment
is Rs. 5,00,000. Show under M-M assumption the payout of dividend
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does not affect the value of firm.
OR
Q3 (a) What do you mean by Dividend and explain the factors affecting 07
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dividend decision in details.
(b) Equity (Rs. 10 each)................................... 15 cr 07
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12% Preference Shares (Rs. 100 each)........................... 15 cr
Retained Earnings.................................. 20 cr
11.5% Debentures (Rs. 100 each)................................... 10 cr
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Next year’s dividend on equity is Rs. 3.60 which is expected to grow at
7% and its market price is Rs. 40. Preference shares redeemable after
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10 years currently selling at Rs. 75. Debentures redeemable after 6
years are selling at Rs. 80. Tax rate is 40%. Find WACC under book
value.
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Q4 (a) Give the meaning of Working Capital and discuss the factors affecting 07
Working Capital Requirements.
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(b) Calculate (a) the operating leverage, (b) financial leverage and (c) 07
combined leverage from the following data under situations I and II
and financial plans, A and B.
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Installed capacity, 1,000 units
Actual production and sales, 800 units
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Selling price, Rs 20 per unit and Variable cost, Rs 15 per unit
Fixed cost: Under situation I, Rs 800 and Under situation II, Rs.1500
Capital Structure Financial Plans
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| A | B | |
|---|---|---|
| Equity | Rs. 5000 | Rs. 7000 |
| Debt (0.10 interest) | Rs. 5000 | Rs. 2000 |
OR
Q4 (a) Discuss the Traditional Approach with the help of diagram. 07
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(b) A Ltd & B. Ltd are identical in all respect except A Ltd issued 12% 07
debentures of Rs. 30,00,000 while B Ltd issued only equity capital.
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Both companies earn 24% before interest and tax on their total assets
of Rs. 50,00,000. Tax rate is 40% and cost of equity is 18%. Find the
value and WACC for both firms using NI and NOI approach.
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Q.S A company is considering two mutually exclusive projects. Both
require cash outlay of Rs. 10,000.each. Required rate of return is 10%
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and tax rate is 50%. Cash outflows before interest and tax are as below:
| A (Rs.) | B (Rs.) | |
|---|---|---|
| Year 1 | 4000 | 6000 |
| Year 2 | 4000 | 3000 |
| Year 3 | 4000 | 2000 |
| Year 4 | 4000 | 5000 |
| Year 5 | 4000 | 5000 |
(a) Calculate Pay Back Period for each project. 07
(b) Calculate Average Rate of Return for each project. 07
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OR
Q.5 (a) Calculate Net Present Value for each project. 07
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(b) Calculate Internal Rate of Return for each project. 07
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