Download GTU MBA 2019 Summer 3rd Sem 2830201 Strategic Financial Management Sfm Question Paper

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1

Seat No.: ________ Enrolment No.___________

GUJARAT TECHNOLOGICAL UNIVERSITY
MBA ? SEMESTER 3 ? EXAMINATION ? SUMMER 2019

Subject Code: 2830201 Date:08/05/2019
Subject Name: Strategic Financial Management (SFM)
Time: 02:30 PM To 05:30 PM Total Marks: 70
Instructions:
1. Attempt all questions.
2. Make suitable assumptions wherever necessary.
3. Figures to the right indicate full marks.

Q.1 (a) Objective Questions 06
1.
_____defines what the organization wants to become in the longer term and
wants to go to fulfill its purpose and achieve its mission.

A. Objective B. Goal
C. Strategy D. Aim
2.
A new machinery in place of old equipment due to technological changes is
termed as :

A. Balancing B. Replacement
C. Modernization D Expansion
3.
MS ltd has a debt-equity mix of 30/70. If MS ltd debt beta for its activity (or
project) is 1.21, what is the beta for its equity?

A. 1.65 B. 1.60
C. 1.52 D. None of the above
4.
If greater risk is associated with receiving of future economic benefit, the
____discount rate is adopted.

A. Lower B. Normal
C. Higher D. Positive
5.
One of the following is a time cost trade-off option:
A. CAT schedule B. Commitment control
C. Most efficient plan D. Line of balance
6.
Setting up an entirely new project which is not concerned with the existing
business is known as :

A. Forward integration B. Backward integration
C. Expansion D. Diversification
Q.1 (b) Define the following terms:
1. Feasibility
2. Amalgamation
3. LOB (Line of Balance)
4. Financial Leverage

04
Q.1 (c) Write short note on ?Sensitivity analysis.? 04

Q.2 (a) ?Strategic financial planning is subject to the various macro and micro
environmental factors.? Elucidate.
07
(b) Briefly discuss the techniques used in financial forecasting. 07
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1

Seat No.: ________ Enrolment No.___________

GUJARAT TECHNOLOGICAL UNIVERSITY
MBA ? SEMESTER 3 ? EXAMINATION ? SUMMER 2019

Subject Code: 2830201 Date:08/05/2019
Subject Name: Strategic Financial Management (SFM)
Time: 02:30 PM To 05:30 PM Total Marks: 70
Instructions:
1. Attempt all questions.
2. Make suitable assumptions wherever necessary.
3. Figures to the right indicate full marks.

Q.1 (a) Objective Questions 06
1.
_____defines what the organization wants to become in the longer term and
wants to go to fulfill its purpose and achieve its mission.

A. Objective B. Goal
C. Strategy D. Aim
2.
A new machinery in place of old equipment due to technological changes is
termed as :

A. Balancing B. Replacement
C. Modernization D Expansion
3.
MS ltd has a debt-equity mix of 30/70. If MS ltd debt beta for its activity (or
project) is 1.21, what is the beta for its equity?

A. 1.65 B. 1.60
C. 1.52 D. None of the above
4.
If greater risk is associated with receiving of future economic benefit, the
____discount rate is adopted.

A. Lower B. Normal
C. Higher D. Positive
5.
One of the following is a time cost trade-off option:
A. CAT schedule B. Commitment control
C. Most efficient plan D. Line of balance
6.
Setting up an entirely new project which is not concerned with the existing
business is known as :

A. Forward integration B. Backward integration
C. Expansion D. Diversification
Q.1 (b) Define the following terms:
1. Feasibility
2. Amalgamation
3. LOB (Line of Balance)
4. Financial Leverage

04
Q.1 (c) Write short note on ?Sensitivity analysis.? 04

Q.2 (a) ?Strategic financial planning is subject to the various macro and micro
environmental factors.? Elucidate.
07
(b) Briefly discuss the techniques used in financial forecasting. 07
2


OR
(b) What is feasibility study? What are the main objectives of conducting a
Pre-feasibility study?
07

Q.3 (a) What are the steps involved in Capital investment process? Describe the
steps in capital investment decision making process.
07
(b) The following table presents the proposed cash flows for projects M and
N with their associated probabilities. Which project has a higher
preference for acceptance?
Possibilities
Project M Project N
Cash
flow(Rs.
Lakhs)
Probability Cash
flow(Rs.
Lakhs)
Probability
1 7,000 0.10 12,000 0.10
2 8,000 0.20 8,000 0.10
3 9,000 0.30 6,000 0.10
4 10,000 0.20 4,000 0.20
5 11,000 0.20 2,000 0.50

07
OR
Q.3 (a) What are the strategic motives behind reverse merger and demerger? 07
(b) Determine the risk adjusted net present value of the following projects:
Particulars Project A Project B Project C
Net cash outlay (Rs.) 1,00,000 1,20,000 2,10,000
Project life (Years) 5 5 5
Annual cash inflow (Rs.) 30,000 42,000 70,000
Coefficient of variation 0.4 0.8 1.2
The company selects the risk adjusted rate of discount on the basis of
coefficient of variation:
Coefficient of
variation
Risk adjusted
rate of discount
0.0 10%
0.4 12%
0.8 14%
1.2 16%
1.6 18%
2.0 22%
More than 2.0 25%

07

Q.4 (a) Write short note on ?Reasons for business failure?? 07
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1

Seat No.: ________ Enrolment No.___________

GUJARAT TECHNOLOGICAL UNIVERSITY
MBA ? SEMESTER 3 ? EXAMINATION ? SUMMER 2019

Subject Code: 2830201 Date:08/05/2019
Subject Name: Strategic Financial Management (SFM)
Time: 02:30 PM To 05:30 PM Total Marks: 70
Instructions:
1. Attempt all questions.
2. Make suitable assumptions wherever necessary.
3. Figures to the right indicate full marks.

Q.1 (a) Objective Questions 06
1.
_____defines what the organization wants to become in the longer term and
wants to go to fulfill its purpose and achieve its mission.

A. Objective B. Goal
C. Strategy D. Aim
2.
A new machinery in place of old equipment due to technological changes is
termed as :

A. Balancing B. Replacement
C. Modernization D Expansion
3.
MS ltd has a debt-equity mix of 30/70. If MS ltd debt beta for its activity (or
project) is 1.21, what is the beta for its equity?

A. 1.65 B. 1.60
C. 1.52 D. None of the above
4.
If greater risk is associated with receiving of future economic benefit, the
____discount rate is adopted.

A. Lower B. Normal
C. Higher D. Positive
5.
One of the following is a time cost trade-off option:
A. CAT schedule B. Commitment control
C. Most efficient plan D. Line of balance
6.
Setting up an entirely new project which is not concerned with the existing
business is known as :

A. Forward integration B. Backward integration
C. Expansion D. Diversification
Q.1 (b) Define the following terms:
1. Feasibility
2. Amalgamation
3. LOB (Line of Balance)
4. Financial Leverage

04
Q.1 (c) Write short note on ?Sensitivity analysis.? 04

Q.2 (a) ?Strategic financial planning is subject to the various macro and micro
environmental factors.? Elucidate.
07
(b) Briefly discuss the techniques used in financial forecasting. 07
2


OR
(b) What is feasibility study? What are the main objectives of conducting a
Pre-feasibility study?
07

Q.3 (a) What are the steps involved in Capital investment process? Describe the
steps in capital investment decision making process.
07
(b) The following table presents the proposed cash flows for projects M and
N with their associated probabilities. Which project has a higher
preference for acceptance?
Possibilities
Project M Project N
Cash
flow(Rs.
Lakhs)
Probability Cash
flow(Rs.
Lakhs)
Probability
1 7,000 0.10 12,000 0.10
2 8,000 0.20 8,000 0.10
3 9,000 0.30 6,000 0.10
4 10,000 0.20 4,000 0.20
5 11,000 0.20 2,000 0.50

07
OR
Q.3 (a) What are the strategic motives behind reverse merger and demerger? 07
(b) Determine the risk adjusted net present value of the following projects:
Particulars Project A Project B Project C
Net cash outlay (Rs.) 1,00,000 1,20,000 2,10,000
Project life (Years) 5 5 5
Annual cash inflow (Rs.) 30,000 42,000 70,000
Coefficient of variation 0.4 0.8 1.2
The company selects the risk adjusted rate of discount on the basis of
coefficient of variation:
Coefficient of
variation
Risk adjusted
rate of discount
0.0 10%
0.4 12%
0.8 14%
1.2 16%
1.6 18%
2.0 22%
More than 2.0 25%

07

Q.4 (a) Write short note on ?Reasons for business failure?? 07
3
(b) Bestbuy Auto Pvt Ltd. has outstanding 1,20,000 shares selling at Rs. 20
per share. The company hopes to make a net income of Rs. 3,50,000
during the year ended 31
st
March, 2011. The company is considering to
pay a dividend of Rs. 2 per share at the end of current year. The
capitalization rate for risk class of this company has been estimated to be
15%.
Assuming no taxes, answer the questions listed below on the basis of the
Modigliani and Miller ? Dividend valuation model:
(i) What will be the price of a share at the end of 31
st
March, 2010
(a) if the dividend is paid, and
(b) if the dividend is not paid?
(ii) How many new shares must the company issue if the dividend is paid
and company needs Rs. 7,40,000 for an approved investment expenditure
during the year?
07
OR
Q.4 (a) Explain the significance of operating and financial leverage analysis for a
financial executive in corporate profit and financial structure planning.
07
(b) The following information pertains to RICO Ltd.
(Rs. Lakhs)
Net profit 60
Outstanding 12% preference shares 200
Number of shares outstanding 6 Lakhs
Return on investment 20%
Equity capitalization rate 16%
Required:
(i) What should be dividend payout ratio so as to keep the share price at
Rs. 41.25 by using Walter model?
(ii) What is the optimum dividend payout ratio according to Walter
model?
07

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1

Seat No.: ________ Enrolment No.___________

GUJARAT TECHNOLOGICAL UNIVERSITY
MBA ? SEMESTER 3 ? EXAMINATION ? SUMMER 2019

Subject Code: 2830201 Date:08/05/2019
Subject Name: Strategic Financial Management (SFM)
Time: 02:30 PM To 05:30 PM Total Marks: 70
Instructions:
1. Attempt all questions.
2. Make suitable assumptions wherever necessary.
3. Figures to the right indicate full marks.

Q.1 (a) Objective Questions 06
1.
_____defines what the organization wants to become in the longer term and
wants to go to fulfill its purpose and achieve its mission.

A. Objective B. Goal
C. Strategy D. Aim
2.
A new machinery in place of old equipment due to technological changes is
termed as :

A. Balancing B. Replacement
C. Modernization D Expansion
3.
MS ltd has a debt-equity mix of 30/70. If MS ltd debt beta for its activity (or
project) is 1.21, what is the beta for its equity?

A. 1.65 B. 1.60
C. 1.52 D. None of the above
4.
If greater risk is associated with receiving of future economic benefit, the
____discount rate is adopted.

A. Lower B. Normal
C. Higher D. Positive
5.
One of the following is a time cost trade-off option:
A. CAT schedule B. Commitment control
C. Most efficient plan D. Line of balance
6.
Setting up an entirely new project which is not concerned with the existing
business is known as :

A. Forward integration B. Backward integration
C. Expansion D. Diversification
Q.1 (b) Define the following terms:
1. Feasibility
2. Amalgamation
3. LOB (Line of Balance)
4. Financial Leverage

04
Q.1 (c) Write short note on ?Sensitivity analysis.? 04

Q.2 (a) ?Strategic financial planning is subject to the various macro and micro
environmental factors.? Elucidate.
07
(b) Briefly discuss the techniques used in financial forecasting. 07
2


OR
(b) What is feasibility study? What are the main objectives of conducting a
Pre-feasibility study?
07

Q.3 (a) What are the steps involved in Capital investment process? Describe the
steps in capital investment decision making process.
07
(b) The following table presents the proposed cash flows for projects M and
N with their associated probabilities. Which project has a higher
preference for acceptance?
Possibilities
Project M Project N
Cash
flow(Rs.
Lakhs)
Probability Cash
flow(Rs.
Lakhs)
Probability
1 7,000 0.10 12,000 0.10
2 8,000 0.20 8,000 0.10
3 9,000 0.30 6,000 0.10
4 10,000 0.20 4,000 0.20
5 11,000 0.20 2,000 0.50

07
OR
Q.3 (a) What are the strategic motives behind reverse merger and demerger? 07
(b) Determine the risk adjusted net present value of the following projects:
Particulars Project A Project B Project C
Net cash outlay (Rs.) 1,00,000 1,20,000 2,10,000
Project life (Years) 5 5 5
Annual cash inflow (Rs.) 30,000 42,000 70,000
Coefficient of variation 0.4 0.8 1.2
The company selects the risk adjusted rate of discount on the basis of
coefficient of variation:
Coefficient of
variation
Risk adjusted
rate of discount
0.0 10%
0.4 12%
0.8 14%
1.2 16%
1.6 18%
2.0 22%
More than 2.0 25%

07

Q.4 (a) Write short note on ?Reasons for business failure?? 07
3
(b) Bestbuy Auto Pvt Ltd. has outstanding 1,20,000 shares selling at Rs. 20
per share. The company hopes to make a net income of Rs. 3,50,000
during the year ended 31
st
March, 2011. The company is considering to
pay a dividend of Rs. 2 per share at the end of current year. The
capitalization rate for risk class of this company has been estimated to be
15%.
Assuming no taxes, answer the questions listed below on the basis of the
Modigliani and Miller ? Dividend valuation model:
(i) What will be the price of a share at the end of 31
st
March, 2010
(a) if the dividend is paid, and
(b) if the dividend is not paid?
(ii) How many new shares must the company issue if the dividend is paid
and company needs Rs. 7,40,000 for an approved investment expenditure
during the year?
07
OR
Q.4 (a) Explain the significance of operating and financial leverage analysis for a
financial executive in corporate profit and financial structure planning.
07
(b) The following information pertains to RICO Ltd.
(Rs. Lakhs)
Net profit 60
Outstanding 12% preference shares 200
Number of shares outstanding 6 Lakhs
Return on investment 20%
Equity capitalization rate 16%
Required:
(i) What should be dividend payout ratio so as to keep the share price at
Rs. 41.25 by using Walter model?
(ii) What is the optimum dividend payout ratio according to Walter
model?
07

4
Q.5 The balance sheet of Jamuna Synthetics Ltd. as at 31stMarch, 2010 is
given below:
Liabilities Rs. Assets Rs.
Equity share capital
(5,00,000 shares of
Rs.10 each)
50,00,000 Land 14,00,000
General Reserve 15,00,000 Building 23,00,000
Debentures (14%) 10,00,000 Plant & Machinery 28,00,000
Sundry creditors 5,00,000 Sundry debtors 6,00,000
Bank overdraft 4,00,000 Inventory 8,00,000
Provision for
taxation
1,00,000 Cash and bank 2,00,000
Patent and trade
marks
3,00,000
Preliminary
expenses
1,00,000
85,00,000 85,00,000
The profit of the company for the past four years are as follows: (Rs)
2007 2008 2009 2010
12,00,000 15,00,000 21,00,000 23,00,000
Every year, the company transfers 20% of its profits to the general
reserve. The industry average rate of return is 18% of the share value. On
31
st
March, 2010, Independent expert valuer has assessed the following
assets: (Rs.)
Land 26,00,000
Building 40,00,000
Plant and machinery 32,00,000
Debtors(after bad debts) 5,00,000
Patent and trade marks 2,00,000
Based on the information given above, calculate the fair value of
company?s share.

14
OR

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1

Seat No.: ________ Enrolment No.___________

GUJARAT TECHNOLOGICAL UNIVERSITY
MBA ? SEMESTER 3 ? EXAMINATION ? SUMMER 2019

Subject Code: 2830201 Date:08/05/2019
Subject Name: Strategic Financial Management (SFM)
Time: 02:30 PM To 05:30 PM Total Marks: 70
Instructions:
1. Attempt all questions.
2. Make suitable assumptions wherever necessary.
3. Figures to the right indicate full marks.

Q.1 (a) Objective Questions 06
1.
_____defines what the organization wants to become in the longer term and
wants to go to fulfill its purpose and achieve its mission.

A. Objective B. Goal
C. Strategy D. Aim
2.
A new machinery in place of old equipment due to technological changes is
termed as :

A. Balancing B. Replacement
C. Modernization D Expansion
3.
MS ltd has a debt-equity mix of 30/70. If MS ltd debt beta for its activity (or
project) is 1.21, what is the beta for its equity?

A. 1.65 B. 1.60
C. 1.52 D. None of the above
4.
If greater risk is associated with receiving of future economic benefit, the
____discount rate is adopted.

A. Lower B. Normal
C. Higher D. Positive
5.
One of the following is a time cost trade-off option:
A. CAT schedule B. Commitment control
C. Most efficient plan D. Line of balance
6.
Setting up an entirely new project which is not concerned with the existing
business is known as :

A. Forward integration B. Backward integration
C. Expansion D. Diversification
Q.1 (b) Define the following terms:
1. Feasibility
2. Amalgamation
3. LOB (Line of Balance)
4. Financial Leverage

04
Q.1 (c) Write short note on ?Sensitivity analysis.? 04

Q.2 (a) ?Strategic financial planning is subject to the various macro and micro
environmental factors.? Elucidate.
07
(b) Briefly discuss the techniques used in financial forecasting. 07
2


OR
(b) What is feasibility study? What are the main objectives of conducting a
Pre-feasibility study?
07

Q.3 (a) What are the steps involved in Capital investment process? Describe the
steps in capital investment decision making process.
07
(b) The following table presents the proposed cash flows for projects M and
N with their associated probabilities. Which project has a higher
preference for acceptance?
Possibilities
Project M Project N
Cash
flow(Rs.
Lakhs)
Probability Cash
flow(Rs.
Lakhs)
Probability
1 7,000 0.10 12,000 0.10
2 8,000 0.20 8,000 0.10
3 9,000 0.30 6,000 0.10
4 10,000 0.20 4,000 0.20
5 11,000 0.20 2,000 0.50

07
OR
Q.3 (a) What are the strategic motives behind reverse merger and demerger? 07
(b) Determine the risk adjusted net present value of the following projects:
Particulars Project A Project B Project C
Net cash outlay (Rs.) 1,00,000 1,20,000 2,10,000
Project life (Years) 5 5 5
Annual cash inflow (Rs.) 30,000 42,000 70,000
Coefficient of variation 0.4 0.8 1.2
The company selects the risk adjusted rate of discount on the basis of
coefficient of variation:
Coefficient of
variation
Risk adjusted
rate of discount
0.0 10%
0.4 12%
0.8 14%
1.2 16%
1.6 18%
2.0 22%
More than 2.0 25%

07

Q.4 (a) Write short note on ?Reasons for business failure?? 07
3
(b) Bestbuy Auto Pvt Ltd. has outstanding 1,20,000 shares selling at Rs. 20
per share. The company hopes to make a net income of Rs. 3,50,000
during the year ended 31
st
March, 2011. The company is considering to
pay a dividend of Rs. 2 per share at the end of current year. The
capitalization rate for risk class of this company has been estimated to be
15%.
Assuming no taxes, answer the questions listed below on the basis of the
Modigliani and Miller ? Dividend valuation model:
(i) What will be the price of a share at the end of 31
st
March, 2010
(a) if the dividend is paid, and
(b) if the dividend is not paid?
(ii) How many new shares must the company issue if the dividend is paid
and company needs Rs. 7,40,000 for an approved investment expenditure
during the year?
07
OR
Q.4 (a) Explain the significance of operating and financial leverage analysis for a
financial executive in corporate profit and financial structure planning.
07
(b) The following information pertains to RICO Ltd.
(Rs. Lakhs)
Net profit 60
Outstanding 12% preference shares 200
Number of shares outstanding 6 Lakhs
Return on investment 20%
Equity capitalization rate 16%
Required:
(i) What should be dividend payout ratio so as to keep the share price at
Rs. 41.25 by using Walter model?
(ii) What is the optimum dividend payout ratio according to Walter
model?
07

4
Q.5 The balance sheet of Jamuna Synthetics Ltd. as at 31stMarch, 2010 is
given below:
Liabilities Rs. Assets Rs.
Equity share capital
(5,00,000 shares of
Rs.10 each)
50,00,000 Land 14,00,000
General Reserve 15,00,000 Building 23,00,000
Debentures (14%) 10,00,000 Plant & Machinery 28,00,000
Sundry creditors 5,00,000 Sundry debtors 6,00,000
Bank overdraft 4,00,000 Inventory 8,00,000
Provision for
taxation
1,00,000 Cash and bank 2,00,000
Patent and trade
marks
3,00,000
Preliminary
expenses
1,00,000
85,00,000 85,00,000
The profit of the company for the past four years are as follows: (Rs)
2007 2008 2009 2010
12,00,000 15,00,000 21,00,000 23,00,000
Every year, the company transfers 20% of its profits to the general
reserve. The industry average rate of return is 18% of the share value. On
31
st
March, 2010, Independent expert valuer has assessed the following
assets: (Rs.)
Land 26,00,000
Building 40,00,000
Plant and machinery 32,00,000
Debtors(after bad debts) 5,00,000
Patent and trade marks 2,00,000
Based on the information given above, calculate the fair value of
company?s share.

14
OR

5
Q.5 A plastic manufacturing company is planning to expand its assets by 50
per cent. All financing for this expansion will come from external
sources. The expansion will generate additional sales of Rs. 3 lakh with a
return of 25 percent on sales before interest and taxes. The finance
department of the company has submitted the following plans for the
consideration of the Board.
Plan 1: Issue of 10% debentures.
Plan 2: Issue of 10% debentures for half the required amount and balance
in equity shares to be issued at 25 per cent premium.
Plan 3: Issue equity shares at 25 percent premium.
Balance sheet of the company as on March 31
Liabilities Amount Assets Amount
Equity capital (Rs.
10 per share)
Rs.4,00,000 Total assets Rs.12,00,000
8% Debentures 3,00,000
Retained earnings 2,00,000
Current Liabilities 3,00,000
12,00,000 12,00,000
Income statements for the year ending March 31
Sales Rs. 19,00,000
Operating costs 16,00,000
EBIT 3,00,000
Interest 24,000
Earnings after tax 2,76,000
Taxes 96,600
EAT 1,79,400
EPS 4.48
(a) Determine the number of equity shares that will be issued if financial
plan 3 is adopted.
(b) Determine indifference point between (i) plans 1 and 2, and (ii) plans
1 and 3, and (iii) plans 2 and3.
(C) Assume that the price earnings ratio is expected to remain unchanged
at 8 if plan 3 is adopted, but is likely to drop to 6 if either plan 1 or 2 is
used to finance the expansion. Determine the expected market price of the
shares in each of the situations.

14

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