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Seat No.: Enrolment No.
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GUJARAT TECHNOLOGICAL UNIVERSITY
MBA - SEMESTER (3) - EXAMINATION - WINTER 2018
Subject Code: 3539221 Date:07/12/2018
Subject Name: Strategic Financial Management
Time:10:30am To 01:30pm Total Marks: 70
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Instructions:
1. Attempt all questions.
2. Make suitable assumptions wherever necessary.
3. Figures to the right indicate full marks.
Q.1 Define Following terms : ( each of two marks) 14
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(a) Zero Date(b) Financial Breakeven point
(c) Intrinsic Value
(d) Business Risk & Financial Risk
(e) Risk Adjusted Discount Rate
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(f) Dividend Payout Ratio(g) Reverse Merger
Q.2 (a) Define ‘Financial Forecasting’. Briefly discuss the techniques of 07
financial forecasting.
(b) A company has estimated the unit variable cost of a product to 07
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be Rs.10, and the sellingprice is Rs. 15 per unit. Budgeted sales for the year are 20,000
units. Estimated fixed cost are as follows:
| Fixed | 50,000 | 60,000 | 70,000 | 80,000 | 90,000 |
| Costs p.a. (Rs) | |||||
| Probability | 0.1 | 0.3 | 0.3 | 0.2 | 0.1 |
What is the probability that the company will equal or exceeds
its target profit of Rs. 25,000 for the year?
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OR
Q.3 (a) A firm is considering capital investment in one of the two mutually exclusive proposals-
project X and Y, which requires cash outlay of Rs, 3,40,000 and
3,30,000 respectively. The certainty equivalent approach is
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used in incorporating risk in capital budgeting decision. Thecurrent yield on government is 8% and this be used as the risk
less rate. The expected net cash flow and their certainty-
equivalents are as follows :
| Project- X | Project-Y | |||
| Yearend | Cash flow (Rs.) | C.E. | Cash flow(Rs.) | C.E. |
| 1 | 1,80,000 | 0.8 | 1,80,000 | 0.9 |
| 2 | 2,00,000 | 0.7 | 1,80,000 | 0.8 |
| 3 | 2,00,000 | 0.5 | 2,00,000 | 0.7 |
Present value factor of Rs. 1 discounted at 8% at the end of the
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year 1,2,and 3 are 0.926,0.857,0.794 respectively.Required , which project should be accepted?
(b) Suppose you are a project manager of Ford ltd, Ford wants to 07
start its new unit in Gujarat, As a project manager you were
given the task of preparing feasibility study report for the same.
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Discuss the factors you need to consider while preparingfeasibility report.
Q.3 (a) Excess company’s earning per share are Rs. 20. The company is 07
considering to adopt payout ratio of 20%, 40% or 60%. What
will be the market values of the company’s share using walter’s
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model.I. If company’s retain earning earn return of 20% and cost
of capital of the company is 10% and
II. If the return of retained earning of company is 15% and
cost of capital of the company is 10%?
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OR
(b) Explain the factors which determine the dividend policy of a 07
company.
Q.4 (a) Mr. Akshat holds 12,000 equity shares in SKP private Ltd. , the 07
nominal and paid up share capital of which consist of:
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1. 40,000 equity shares of Rs. 1 each and2. 10,000, 8% preference shares of Rs. 1 each
It is ascertained that :
I. The normal annual profit of such a company is Rs. 12,000.
II. The normal rate of transfer to general reserve is 10%.
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III. The normal return by way of dividend on the paid upvalue of equity share capital for the type of business
carried on by the company is 15%.
Based on above parameter calculate the valuation of Mr.
Akshat’s share holding in SKP pvt.ltd.
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(b) What is corporate restructuring ? describe various techniques of 07
corporate restructuring .
Q.4 Calculate the degree of operating, financial and combined leverage based on following information :
| Particular | Firm-A | Firm -B | Firm -C |
| Output (units) | 60,000 | 15,000 | 1,00,000 |
| Fixed cost | 7,000 | 14,000 | 1,500 |
| Variable Cost per unit | 0.2 | 1.5 | 0.02 |
| Interest on borrowed fund | 4,000 | 8,000 | - |
| Selling Price per unit | 0.60 | 5.00 | 0.10 |
(a) Define Industrial sickness and discuss the causes of industrial 07
sickness.
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(b) The following particulars are available in respect of a corporate 07
(1) profit after taxes (for the current year) Rs. 30 crore which
include extraordinary gain of Rs. 5 crore (ii) to maintain sales,
the firm is to increase advertisement expenditure of Rs. 2
crore (iii) capitalization rate applicable to business to which
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corporate belongs is 12 percent.From the above information, determine the value of business,
value of equity( assume total external liabilities of Rs. 50
crore) and price per equity share( assume 1 crore equity shares
of Rs. 100 each outstanding) based on the capitalization
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method. Assume tax rate of 40 percent:A company is planning an expansion of its assets in all. 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 per cent on sales before interest and taxes. The finance department of the company has submitted the following plans for consideration of the board.
Plan-I: Issue of 10% debentures
Plan-II: Issues of 10% debentures for half the required amount and balance in equity shares to be at 25 percent premium.
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Plan-III: Issue of equity shares at 25 percent premium.Balance sheet of the company as on 31* march
| Liabilities | Amount | Assets | Amount |
| Equity capital(Rs. 10 per share) | 4,00,000 | Total Assets | 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 statement for the year ending 31% march
| Particular | Amount |
| Sales | 19,00,000 |
| Operating Cost | 16,00,000 |
| EBIT | 3,00,000 |
| Interest | 24,000 |
| Earning After Tax | 2,76,000 |
| Taxes | 96,600 |
| EAT | 1,79,400 |
| EPS | 4.48 |
I. Determine the number of equity shares that will be issued if plan 3 is adopted.
II. Determine indifference point between(i) plan 1 and 2(i1) Plan 1 and plan 3, and (iii) plans 2 and 3.
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III. Assume that the price earning 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 situation.OR
The balance sheet of Surya ltd as on march 31,2010 is as follows :
| Particular | Amount |
| Sources of fund : | |
| Share capital | 200 |
| Reserve & surplus | 140 |
| Long term loans | 360 |
| Total | 700 |
| Application of fund : | |
| Fixed asset (net block) | 500 |
| Current assets, loans & provisions | |
| Inventories | 300 |
| Receivables | |
| Cash & bank | 60 |
| Total | 600 |
| Less : current liability and provisions | |
| Short term loans | 200 |
| Payables | 120 |
| Provisions | 80 |
| Total | 400 |
| Net current assets | 200 |
| Total | 700 |
Sales for the year 2009-10 were Rs. 600 lakh. For the year ending on march 31,2011, they are expected to increase by 20% the net profit margin after taxes and dividend payout are expected to be 4 and 50 per cent respectively.
You are required to :
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1. Estimate the external fund requirement for the year 2010-112. Determine the mode of raising EFR given the following parameters:
a. Current ratio should be 1.33
b. Ratio of fixed asset to long term loan should be 1.5
c. Long term debt to equity ratio should not exceed 1.06
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3. Determine the order of preference of EFR amongst short term loans, long term loans and equities.--- Content provided by FirstRanker.com ---
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