Download GTU (Gujarat Technological University) MBA (Master of Business Administration) 2019 Summer 2nd Sem 4529202 Corporate Finance Previous Question Paper
Seat No.: ________ Enrolment No.___________
GUJARAT TECHNOLOGICAL UNIVERSITY
MBA ? SEMESTER -2 ? EXAMINATION ? SUMMER 2019
Subject Code: 4529202 Date:13/05/2019
Subject Name: Corporate Finance
Time: 10:30 AM To 01:30 PM Total Marks: 70
Instructions:
1. Attempt all questions.
2. Make suitable assumptions wherever necessary.
3. Figures to the right indicate full marks.
4. Provide financial tables for PV & FV
Q.
No.
Marks
Q.1 Explain/Solve following concepts of theory/practical
(a) Gross operating cycle and Cash conversion cycle.
(b) IRR v/s NPV
(c) Factoring
(d) Optimum Cash Balance
(e) A bank has offered you annuity of Rs. 1800 for 10 years if you invest
Rs. 12000 today. What rate of Return would you earn?
(f) Mira is borrowing Rs. 500000 to buy a house. If he pays equal
installment for 8 years and 9% is interest rate on outstanding balance,
what is the amount of annual installments.
(g) Rs. 1000 Per value bond bearing coupon rate 12% will mature after 10
years. This bond is currently selling for Rs. 950.what is Current yield
of this bond?
. 14
Q.2 (a) ?Wealth maximization objective is superior to profit Maximization
criteria of financial decision making? Justify.
07
(b) Gujarat Limited?s earnings and dividends have been growing at a rat of
18%per annum. This growth rate is expected to continue for 4 years.
After that the growth rate will fall to 12% for next 4 years. Thereafter, the
growth rate is expected to be 6% forever. If the last dividend per share
was Rs. 2.00 and the investor?s required rate of return on Gujarat?s equity
is 15%, what is the intrinsic value per equity share?
07
OR
(b) A Firm Sales, Variable Cost an Fixed Cost Amount to Rs. 75,00,000, Rs
42,00,000 and Rs. 6,00,000 respectively. It has borrowed Rs. 45,00,000
at 9% and its equity capital total Rs. 55,00,000 (Rs 100 each share).
(Assume no tax). Compute the Following:
(i) ROI
(ii) Does the firm have favorable financial leverage?
(iii) What are the operating, Financial and Combined Leverage?
(iv) EPS
(v)
07
Q.3 (a) Explain the Walter?s Model of Dividend in detail and also state how it is 07
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Page 1 of 4
Seat No.: ________ Enrolment No.___________
GUJARAT TECHNOLOGICAL UNIVERSITY
MBA ? SEMESTER -2 ? EXAMINATION ? SUMMER 2019
Subject Code: 4529202 Date:13/05/2019
Subject Name: Corporate Finance
Time: 10:30 AM To 01:30 PM Total Marks: 70
Instructions:
1. Attempt all questions.
2. Make suitable assumptions wherever necessary.
3. Figures to the right indicate full marks.
4. Provide financial tables for PV & FV
Q.
No.
Marks
Q.1 Explain/Solve following concepts of theory/practical
(a) Gross operating cycle and Cash conversion cycle.
(b) IRR v/s NPV
(c) Factoring
(d) Optimum Cash Balance
(e) A bank has offered you annuity of Rs. 1800 for 10 years if you invest
Rs. 12000 today. What rate of Return would you earn?
(f) Mira is borrowing Rs. 500000 to buy a house. If he pays equal
installment for 8 years and 9% is interest rate on outstanding balance,
what is the amount of annual installments.
(g) Rs. 1000 Per value bond bearing coupon rate 12% will mature after 10
years. This bond is currently selling for Rs. 950.what is Current yield
of this bond?
. 14
Q.2 (a) ?Wealth maximization objective is superior to profit Maximization
criteria of financial decision making? Justify.
07
(b) Gujarat Limited?s earnings and dividends have been growing at a rat of
18%per annum. This growth rate is expected to continue for 4 years.
After that the growth rate will fall to 12% for next 4 years. Thereafter, the
growth rate is expected to be 6% forever. If the last dividend per share
was Rs. 2.00 and the investor?s required rate of return on Gujarat?s equity
is 15%, what is the intrinsic value per equity share?
07
OR
(b) A Firm Sales, Variable Cost an Fixed Cost Amount to Rs. 75,00,000, Rs
42,00,000 and Rs. 6,00,000 respectively. It has borrowed Rs. 45,00,000
at 9% and its equity capital total Rs. 55,00,000 (Rs 100 each share).
(Assume no tax). Compute the Following:
(i) ROI
(ii) Does the firm have favorable financial leverage?
(iii) What are the operating, Financial and Combined Leverage?
(iv) EPS
(v)
07
Q.3 (a) Explain the Walter?s Model of Dividend in detail and also state how it is 07
Page 2 of 4
different from Gordon Dividend Model.
(b) Amazing Auto Ltd. has out sanding 120000 share selling at Rs. 20 per
share. The company hopes to make a net income of Rs. 350000 during
the year ended on 31
st
March,2019. The company is considering to pay
dividend of Rs. 2.00 per share at the end of current year. The
capitalization rate for the risk class of this company has been estimated to
be 15%.Assuming no taxes, Answer the following questions listed below
on the basis of Modigliani and Miller ? Dividend Model:
(i)What will be price of share at the end of 31
St
march 2018.
a. If dividend is paid and
b. If dividend is not paid?
(ii)How many new shares must the company issue if the dividend is paid
and company needs Rs. 740000 for investment Projects during the year?
Compute value of the firm in same case.
07
OR
Q.3 (a) Explain the NI and NOI approach of capital structure theory in detail.
State the point of difference in NOI an MM Model of Capital Structure.
07
(b) Prepare a cash budget for the 3 month that is 30june from the following
information
month Sales Rs Materials
Rs.
Wages Rs. Overhead
Rs.
February 14000 9600 3000 1700
March 15000 9000 3000 1900
April 16000 9200 3200 2000
May 17000 10000 3600 2200
June 18000 10400 4000 2300
? 10% of the sales are in cash
? Credit terms are:
? Debtors: 50% of the credit sales are collected next month and
balance in the following month
? Creditors: for materials -2 months, for wages ? ? months, for
overhead-1/2 month
? Plant and machinery will be installed in February 2009 t a cost of
96000 Rs. The monthly installment of Rs. 2000 is payable from
April onwards
? A dividend of @ 5% on preference share capital of Rs. 200000
will be paid on 1
st
June
? advance to be received for sale of vehicle of Rs. 9000 in June
? Dividend from investment amounting to Rs. 1000 is expected to
be received in June
? Income tax (advance) to be paid in June of rs.2000
? Cash and Bank balance on 1
st
April 2002 to be 6000Rs.
07
Q.4 (a) What do you mean by working capital management? State the concept of
permanent working capital and variable WC. Detail the factors affecting
working capital requirement of the firm point to point.
07
(b) The relevant financial information for Zenon Limited for the year ended
2019 is given below:
07
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Page 1 of 4
Seat No.: ________ Enrolment No.___________
GUJARAT TECHNOLOGICAL UNIVERSITY
MBA ? SEMESTER -2 ? EXAMINATION ? SUMMER 2019
Subject Code: 4529202 Date:13/05/2019
Subject Name: Corporate Finance
Time: 10:30 AM To 01:30 PM Total Marks: 70
Instructions:
1. Attempt all questions.
2. Make suitable assumptions wherever necessary.
3. Figures to the right indicate full marks.
4. Provide financial tables for PV & FV
Q.
No.
Marks
Q.1 Explain/Solve following concepts of theory/practical
(a) Gross operating cycle and Cash conversion cycle.
(b) IRR v/s NPV
(c) Factoring
(d) Optimum Cash Balance
(e) A bank has offered you annuity of Rs. 1800 for 10 years if you invest
Rs. 12000 today. What rate of Return would you earn?
(f) Mira is borrowing Rs. 500000 to buy a house. If he pays equal
installment for 8 years and 9% is interest rate on outstanding balance,
what is the amount of annual installments.
(g) Rs. 1000 Per value bond bearing coupon rate 12% will mature after 10
years. This bond is currently selling for Rs. 950.what is Current yield
of this bond?
. 14
Q.2 (a) ?Wealth maximization objective is superior to profit Maximization
criteria of financial decision making? Justify.
07
(b) Gujarat Limited?s earnings and dividends have been growing at a rat of
18%per annum. This growth rate is expected to continue for 4 years.
After that the growth rate will fall to 12% for next 4 years. Thereafter, the
growth rate is expected to be 6% forever. If the last dividend per share
was Rs. 2.00 and the investor?s required rate of return on Gujarat?s equity
is 15%, what is the intrinsic value per equity share?
07
OR
(b) A Firm Sales, Variable Cost an Fixed Cost Amount to Rs. 75,00,000, Rs
42,00,000 and Rs. 6,00,000 respectively. It has borrowed Rs. 45,00,000
at 9% and its equity capital total Rs. 55,00,000 (Rs 100 each share).
(Assume no tax). Compute the Following:
(i) ROI
(ii) Does the firm have favorable financial leverage?
(iii) What are the operating, Financial and Combined Leverage?
(iv) EPS
(v)
07
Q.3 (a) Explain the Walter?s Model of Dividend in detail and also state how it is 07
Page 2 of 4
different from Gordon Dividend Model.
(b) Amazing Auto Ltd. has out sanding 120000 share selling at Rs. 20 per
share. The company hopes to make a net income of Rs. 350000 during
the year ended on 31
st
March,2019. The company is considering to pay
dividend of Rs. 2.00 per share at the end of current year. The
capitalization rate for the risk class of this company has been estimated to
be 15%.Assuming no taxes, Answer the following questions listed below
on the basis of Modigliani and Miller ? Dividend Model:
(i)What will be price of share at the end of 31
St
march 2018.
a. If dividend is paid and
b. If dividend is not paid?
(ii)How many new shares must the company issue if the dividend is paid
and company needs Rs. 740000 for investment Projects during the year?
Compute value of the firm in same case.
07
OR
Q.3 (a) Explain the NI and NOI approach of capital structure theory in detail.
State the point of difference in NOI an MM Model of Capital Structure.
07
(b) Prepare a cash budget for the 3 month that is 30june from the following
information
month Sales Rs Materials
Rs.
Wages Rs. Overhead
Rs.
February 14000 9600 3000 1700
March 15000 9000 3000 1900
April 16000 9200 3200 2000
May 17000 10000 3600 2200
June 18000 10400 4000 2300
? 10% of the sales are in cash
? Credit terms are:
? Debtors: 50% of the credit sales are collected next month and
balance in the following month
? Creditors: for materials -2 months, for wages ? ? months, for
overhead-1/2 month
? Plant and machinery will be installed in February 2009 t a cost of
96000 Rs. The monthly installment of Rs. 2000 is payable from
April onwards
? A dividend of @ 5% on preference share capital of Rs. 200000
will be paid on 1
st
June
? advance to be received for sale of vehicle of Rs. 9000 in June
? Dividend from investment amounting to Rs. 1000 is expected to
be received in June
? Income tax (advance) to be paid in June of rs.2000
? Cash and Bank balance on 1
st
April 2002 to be 6000Rs.
07
Q.4 (a) What do you mean by working capital management? State the concept of
permanent working capital and variable WC. Detail the factors affecting
working capital requirement of the firm point to point.
07
(b) The relevant financial information for Zenon Limited for the year ended
2019 is given below:
07
Page 3 of 4
Profit and Loss account
data
(Rs. In
Millions)
Sales 80
Cost of Goods sold 56
Balance sheet data
Beginning of
2019 (Rs. In
Millions)
End of 2019 (Rs.
In Millions)
Inventory 9 12
Accounts Receivables 12 16
Accounts Payables 7 10
What is the length of Operating Cycle? What is the Length of Cash
Cycle? Assume 365 days to a year.
OR
Q.4 (a) What do you mean by leverage? Explain the operating leverage, financial
leverage and combined leverage in detail.
07
(b) A Company has on its books the following amounts and specific cost of
each type of capital.
Types of Capital
(sources)
Book Value
(Rs.
Market
Value (Rs.)
Specific Cost
(%) after tax
Debentures 400000 380000 5
Preference share
capital 100000 110000 8
Equity share capital 600000
1200000
15
Retained Earnings 200000 13
Total 1300000 1690000
Determine the weighted average cost of capital using (i) book value
weights and (ii) Market value weights. How they are different?
07
Q.5
A Company is Considering an investment proposal to install new milling
control equipments at a cost of Rs. 50000. The facility has a life
expectancy of 5 years and no salvage value. The tax rate is 35%. Assume
the firm uses straight line method of depreciation and the same is allowed
for tax purposes. The estimated sash flow before depreciation and tax(
CFBT) from the investment proposal are as follows :
Year CFBT (Rs.)
1 10000
2 10692
3 12769
4 13460
5 20385
(a) From above information Compute (i) Payback Period and (ii) Average
rate of return on above investments.
07
(b) If company cost of Capital of 10%, what will be NPV and PI of the
investment proposal and what you advise, whether the company should
undertake above investment or not.
07
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Page 1 of 4
Seat No.: ________ Enrolment No.___________
GUJARAT TECHNOLOGICAL UNIVERSITY
MBA ? SEMESTER -2 ? EXAMINATION ? SUMMER 2019
Subject Code: 4529202 Date:13/05/2019
Subject Name: Corporate Finance
Time: 10:30 AM To 01:30 PM Total Marks: 70
Instructions:
1. Attempt all questions.
2. Make suitable assumptions wherever necessary.
3. Figures to the right indicate full marks.
4. Provide financial tables for PV & FV
Q.
No.
Marks
Q.1 Explain/Solve following concepts of theory/practical
(a) Gross operating cycle and Cash conversion cycle.
(b) IRR v/s NPV
(c) Factoring
(d) Optimum Cash Balance
(e) A bank has offered you annuity of Rs. 1800 for 10 years if you invest
Rs. 12000 today. What rate of Return would you earn?
(f) Mira is borrowing Rs. 500000 to buy a house. If he pays equal
installment for 8 years and 9% is interest rate on outstanding balance,
what is the amount of annual installments.
(g) Rs. 1000 Per value bond bearing coupon rate 12% will mature after 10
years. This bond is currently selling for Rs. 950.what is Current yield
of this bond?
. 14
Q.2 (a) ?Wealth maximization objective is superior to profit Maximization
criteria of financial decision making? Justify.
07
(b) Gujarat Limited?s earnings and dividends have been growing at a rat of
18%per annum. This growth rate is expected to continue for 4 years.
After that the growth rate will fall to 12% for next 4 years. Thereafter, the
growth rate is expected to be 6% forever. If the last dividend per share
was Rs. 2.00 and the investor?s required rate of return on Gujarat?s equity
is 15%, what is the intrinsic value per equity share?
07
OR
(b) A Firm Sales, Variable Cost an Fixed Cost Amount to Rs. 75,00,000, Rs
42,00,000 and Rs. 6,00,000 respectively. It has borrowed Rs. 45,00,000
at 9% and its equity capital total Rs. 55,00,000 (Rs 100 each share).
(Assume no tax). Compute the Following:
(i) ROI
(ii) Does the firm have favorable financial leverage?
(iii) What are the operating, Financial and Combined Leverage?
(iv) EPS
(v)
07
Q.3 (a) Explain the Walter?s Model of Dividend in detail and also state how it is 07
Page 2 of 4
different from Gordon Dividend Model.
(b) Amazing Auto Ltd. has out sanding 120000 share selling at Rs. 20 per
share. The company hopes to make a net income of Rs. 350000 during
the year ended on 31
st
March,2019. The company is considering to pay
dividend of Rs. 2.00 per share at the end of current year. The
capitalization rate for the risk class of this company has been estimated to
be 15%.Assuming no taxes, Answer the following questions listed below
on the basis of Modigliani and Miller ? Dividend Model:
(i)What will be price of share at the end of 31
St
march 2018.
a. If dividend is paid and
b. If dividend is not paid?
(ii)How many new shares must the company issue if the dividend is paid
and company needs Rs. 740000 for investment Projects during the year?
Compute value of the firm in same case.
07
OR
Q.3 (a) Explain the NI and NOI approach of capital structure theory in detail.
State the point of difference in NOI an MM Model of Capital Structure.
07
(b) Prepare a cash budget for the 3 month that is 30june from the following
information
month Sales Rs Materials
Rs.
Wages Rs. Overhead
Rs.
February 14000 9600 3000 1700
March 15000 9000 3000 1900
April 16000 9200 3200 2000
May 17000 10000 3600 2200
June 18000 10400 4000 2300
? 10% of the sales are in cash
? Credit terms are:
? Debtors: 50% of the credit sales are collected next month and
balance in the following month
? Creditors: for materials -2 months, for wages ? ? months, for
overhead-1/2 month
? Plant and machinery will be installed in February 2009 t a cost of
96000 Rs. The monthly installment of Rs. 2000 is payable from
April onwards
? A dividend of @ 5% on preference share capital of Rs. 200000
will be paid on 1
st
June
? advance to be received for sale of vehicle of Rs. 9000 in June
? Dividend from investment amounting to Rs. 1000 is expected to
be received in June
? Income tax (advance) to be paid in June of rs.2000
? Cash and Bank balance on 1
st
April 2002 to be 6000Rs.
07
Q.4 (a) What do you mean by working capital management? State the concept of
permanent working capital and variable WC. Detail the factors affecting
working capital requirement of the firm point to point.
07
(b) The relevant financial information for Zenon Limited for the year ended
2019 is given below:
07
Page 3 of 4
Profit and Loss account
data
(Rs. In
Millions)
Sales 80
Cost of Goods sold 56
Balance sheet data
Beginning of
2019 (Rs. In
Millions)
End of 2019 (Rs.
In Millions)
Inventory 9 12
Accounts Receivables 12 16
Accounts Payables 7 10
What is the length of Operating Cycle? What is the Length of Cash
Cycle? Assume 365 days to a year.
OR
Q.4 (a) What do you mean by leverage? Explain the operating leverage, financial
leverage and combined leverage in detail.
07
(b) A Company has on its books the following amounts and specific cost of
each type of capital.
Types of Capital
(sources)
Book Value
(Rs.
Market
Value (Rs.)
Specific Cost
(%) after tax
Debentures 400000 380000 5
Preference share
capital 100000 110000 8
Equity share capital 600000
1200000
15
Retained Earnings 200000 13
Total 1300000 1690000
Determine the weighted average cost of capital using (i) book value
weights and (ii) Market value weights. How they are different?
07
Q.5
A Company is Considering an investment proposal to install new milling
control equipments at a cost of Rs. 50000. The facility has a life
expectancy of 5 years and no salvage value. The tax rate is 35%. Assume
the firm uses straight line method of depreciation and the same is allowed
for tax purposes. The estimated sash flow before depreciation and tax(
CFBT) from the investment proposal are as follows :
Year CFBT (Rs.)
1 10000
2 10692
3 12769
4 13460
5 20385
(a) From above information Compute (i) Payback Period and (ii) Average
rate of return on above investments.
07
(b) If company cost of Capital of 10%, what will be NPV and PI of the
investment proposal and what you advise, whether the company should
undertake above investment or not.
07
Page 4 of 4
OR
Q.5 (a) If company has predetermined cut off rate (hurdle rate) 10% what is your
decision, whether company should undertake investment to maximize the
wealth of shareholders or not?
07
(b)
If company?s cost of capital is 12%, Compute Profitability index and
state your decision on acceptability of the investment proposals
07
*************
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This post was last modified on 19 February 2020