Download JNTUH (Jawaharlal Nehru Technological University Hyderabad) MBA (Master of Business Administration) 2nd Semester (Second Semester) R17 2019 Dec 742AC Financial Management Previous Question Paper
Code No: 742AC
JAWAHARLAL NEHRU TECHNOLOGICAL UNIVERSITY HYDERABAD
MBA II Semester Examinations, December - 2019
FINANCIAL MANAGEMENT
Time: 3hours Max.Marks:75
Note: This question paper contains two parts A and B.
Part A is compulsory which carries 25 marks. Answer all questions in Part A. Part B
consists of 5 Units. Answer any one full question from each unit. Each question carries
10 marks and may have a, b, c as sub questions.
PART - A 5 ? 5 Marks = 25
1.a) Explain the goals of finance function. [5]
b) What is weighted average cost of capital and marginal cost of capital? [5]
c) What similarities are there between the risk-adjusted discount rate method and the
certainty-equivalent method? [5]
d) What is ?informational content? of dividend payments? Explain. [5]
e) A firm has been offered cash management service by a bank for Rs. 1,00,000 per year.
It is estimated that such a service would not only eliminate ?excess? cash on deposits
(Rs. 8,00,000) but also reduce its administration and other costs to the tune of Rs.5,000
per month. Assuming the cost of capital of 15 percent, is it worthwhile for the firm to
engage the cash management service? [5]
PART - B 5 ? 10 Marks = 50
2.a) ?The wealth maximization objective provides an operationally appropriate decision
criteria?. Discuss.
b) Explain briefly agency theory. [5+5]
OR
3.a) A limited company borrows from a commercial bank of Rs. 10,00,000 at 12 percent
rate of interest to be paid in equal annual end-of- year installments. What would the
size of the installment be? Assume the repayment period is 5 years.
b) Explain about sensitivity analysis. [5+5]
4. A company is planning to purchase a machine to meet the increased demand for its
products in the market. The machine costs Rs. 5,00,000 and has no salvage value. The
expected life of the machine is 5 years, and the company employs straight line method
of depreciation for tax purposes. The estimated earnings after taxes are Rs. 50,000 each
year for 5 years. The after-tax required rate of return of the company is 12 percent.
Determine the IRR. [10]
OR
5.a) Z ltd. is forecasting a growth rate of 12 percent per annum in the next 2 years. The
growth rate is likely to fall to 10 percent for the third year and the fourth year. After
that, the growth rate is expected to stabilize at 8 percent per annum. If the last
dividend was Rs.1.50 per share and the investor?s required rate of return is 16 percent,
find out the intrinsic value per share of Z ltd as of date.
b) Discuss the approach to determine the cost of retained earnings. [5+5]
R17
S
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Code No: 742AC
JAWAHARLAL NEHRU TECHNOLOGICAL UNIVERSITY HYDERABAD
MBA II Semester Examinations, December - 2019
FINANCIAL MANAGEMENT
Time: 3hours Max.Marks:75
Note: This question paper contains two parts A and B.
Part A is compulsory which carries 25 marks. Answer all questions in Part A. Part B
consists of 5 Units. Answer any one full question from each unit. Each question carries
10 marks and may have a, b, c as sub questions.
PART - A 5 ? 5 Marks = 25
1.a) Explain the goals of finance function. [5]
b) What is weighted average cost of capital and marginal cost of capital? [5]
c) What similarities are there between the risk-adjusted discount rate method and the
certainty-equivalent method? [5]
d) What is ?informational content? of dividend payments? Explain. [5]
e) A firm has been offered cash management service by a bank for Rs. 1,00,000 per year.
It is estimated that such a service would not only eliminate ?excess? cash on deposits
(Rs. 8,00,000) but also reduce its administration and other costs to the tune of Rs.5,000
per month. Assuming the cost of capital of 15 percent, is it worthwhile for the firm to
engage the cash management service? [5]
PART - B 5 ? 10 Marks = 50
2.a) ?The wealth maximization objective provides an operationally appropriate decision
criteria?. Discuss.
b) Explain briefly agency theory. [5+5]
OR
3.a) A limited company borrows from a commercial bank of Rs. 10,00,000 at 12 percent
rate of interest to be paid in equal annual end-of- year installments. What would the
size of the installment be? Assume the repayment period is 5 years.
b) Explain about sensitivity analysis. [5+5]
4. A company is planning to purchase a machine to meet the increased demand for its
products in the market. The machine costs Rs. 5,00,000 and has no salvage value. The
expected life of the machine is 5 years, and the company employs straight line method
of depreciation for tax purposes. The estimated earnings after taxes are Rs. 50,000 each
year for 5 years. The after-tax required rate of return of the company is 12 percent.
Determine the IRR. [10]
OR
5.a) Z ltd. is forecasting a growth rate of 12 percent per annum in the next 2 years. The
growth rate is likely to fall to 10 percent for the third year and the fourth year. After
that, the growth rate is expected to stabilize at 8 percent per annum. If the last
dividend was Rs.1.50 per share and the investor?s required rate of return is 16 percent,
find out the intrinsic value per share of Z ltd as of date.
b) Discuss the approach to determine the cost of retained earnings. [5+5]
R17
S
6. The well-established company?s most recent balance sheet is as follows
Liabilities Amount Assets Amount
Equity Capital(Rs.10 per share) Rs.6,00,000 Net fixed assets Rs.15,00,000
10% Lon-term debt Rs.8,00,000 Current assets Rs. 5,00,000
Retained earnings Rs.2,00,000
Current liabilities Rs.4,00,000
Total Rs.20,00,000 Total Rs.20,00,000
The company?s total assets turnover ratio is 3, its fixed operating costs are Rs.10,00,000
and the variable costs ratio is 40 percent. The income tax rate is 35 percent.
a) Calculate all the three types of leverages.
b) Determine the likely level of EBIT if EPS is i) Rs.1 ii) Rs.3 and iii) zero. [10]
OR
7.a) Explain the relationship between leverage and the cost of capital.
b) What is the indifference point in the EBIT-EPS analysis? How would you compare it?
[5+5]
8.a) What are the assumptions and arguments by Modigliani and Miller in support of
the irrelevance of dividends? Are dividends really irrelevant? Discuss.
b) Explain the major forms of dividends. [5+5]
OR
9. XYZ Ltd information is given below
Production of the year 69,000 units
Finished goods in store, 3 months
Raw material in store 2 months consumption
Production process 1 month
Credit allowed by creditors, 2 months
Credit given to debtors, 3 months
Selling price per unit Rs.50
Raw material 50 percent of selling price
Direct wages, 10 percent of selling price
Manufacturing and administrative overheads, 16 percent of selling price
Selling over heads, 4 percent of selling price
There is a regular production and sales cycle and wages overheads accrue evenly.
Wages are paid in the next month of accrual. Material is introduced in the beginning of
the production cycle. Calculate the working capital requirement. [10]
10.a) What are credit standards? What key variables should be considered in evaluating
possible changes in credit standards?
b) What are the limitations of ABC inventory control system? [5+5]
OR
S
FirstRanker.com - FirstRanker's Choice
Code No: 742AC
JAWAHARLAL NEHRU TECHNOLOGICAL UNIVERSITY HYDERABAD
MBA II Semester Examinations, December - 2019
FINANCIAL MANAGEMENT
Time: 3hours Max.Marks:75
Note: This question paper contains two parts A and B.
Part A is compulsory which carries 25 marks. Answer all questions in Part A. Part B
consists of 5 Units. Answer any one full question from each unit. Each question carries
10 marks and may have a, b, c as sub questions.
PART - A 5 ? 5 Marks = 25
1.a) Explain the goals of finance function. [5]
b) What is weighted average cost of capital and marginal cost of capital? [5]
c) What similarities are there between the risk-adjusted discount rate method and the
certainty-equivalent method? [5]
d) What is ?informational content? of dividend payments? Explain. [5]
e) A firm has been offered cash management service by a bank for Rs. 1,00,000 per year.
It is estimated that such a service would not only eliminate ?excess? cash on deposits
(Rs. 8,00,000) but also reduce its administration and other costs to the tune of Rs.5,000
per month. Assuming the cost of capital of 15 percent, is it worthwhile for the firm to
engage the cash management service? [5]
PART - B 5 ? 10 Marks = 50
2.a) ?The wealth maximization objective provides an operationally appropriate decision
criteria?. Discuss.
b) Explain briefly agency theory. [5+5]
OR
3.a) A limited company borrows from a commercial bank of Rs. 10,00,000 at 12 percent
rate of interest to be paid in equal annual end-of- year installments. What would the
size of the installment be? Assume the repayment period is 5 years.
b) Explain about sensitivity analysis. [5+5]
4. A company is planning to purchase a machine to meet the increased demand for its
products in the market. The machine costs Rs. 5,00,000 and has no salvage value. The
expected life of the machine is 5 years, and the company employs straight line method
of depreciation for tax purposes. The estimated earnings after taxes are Rs. 50,000 each
year for 5 years. The after-tax required rate of return of the company is 12 percent.
Determine the IRR. [10]
OR
5.a) Z ltd. is forecasting a growth rate of 12 percent per annum in the next 2 years. The
growth rate is likely to fall to 10 percent for the third year and the fourth year. After
that, the growth rate is expected to stabilize at 8 percent per annum. If the last
dividend was Rs.1.50 per share and the investor?s required rate of return is 16 percent,
find out the intrinsic value per share of Z ltd as of date.
b) Discuss the approach to determine the cost of retained earnings. [5+5]
R17
S
6. The well-established company?s most recent balance sheet is as follows
Liabilities Amount Assets Amount
Equity Capital(Rs.10 per share) Rs.6,00,000 Net fixed assets Rs.15,00,000
10% Lon-term debt Rs.8,00,000 Current assets Rs. 5,00,000
Retained earnings Rs.2,00,000
Current liabilities Rs.4,00,000
Total Rs.20,00,000 Total Rs.20,00,000
The company?s total assets turnover ratio is 3, its fixed operating costs are Rs.10,00,000
and the variable costs ratio is 40 percent. The income tax rate is 35 percent.
a) Calculate all the three types of leverages.
b) Determine the likely level of EBIT if EPS is i) Rs.1 ii) Rs.3 and iii) zero. [10]
OR
7.a) Explain the relationship between leverage and the cost of capital.
b) What is the indifference point in the EBIT-EPS analysis? How would you compare it?
[5+5]
8.a) What are the assumptions and arguments by Modigliani and Miller in support of
the irrelevance of dividends? Are dividends really irrelevant? Discuss.
b) Explain the major forms of dividends. [5+5]
OR
9. XYZ Ltd information is given below
Production of the year 69,000 units
Finished goods in store, 3 months
Raw material in store 2 months consumption
Production process 1 month
Credit allowed by creditors, 2 months
Credit given to debtors, 3 months
Selling price per unit Rs.50
Raw material 50 percent of selling price
Direct wages, 10 percent of selling price
Manufacturing and administrative overheads, 16 percent of selling price
Selling over heads, 4 percent of selling price
There is a regular production and sales cycle and wages overheads accrue evenly.
Wages are paid in the next month of accrual. Material is introduced in the beginning of
the production cycle. Calculate the working capital requirement. [10]
10.a) What are credit standards? What key variables should be considered in evaluating
possible changes in credit standards?
b) What are the limitations of ABC inventory control system? [5+5]
OR
S
11. XYZ company is considering merging with the ABC ltd XYZ?s shares are currently
traded at Rs.25 and it has 2,00,000 shares outstanding and earnings of Rs.400,000;
ABC has 1,00,000 shares outstanding and earnings of Rs.100,000. The merger will
occur by means of a stock swap(exchange), ABC has agreed to a plan under which
XYZ will offer current market value for ABC shares (i.e if XYZ?s shares current
market value is Rs.25 and that of ABC Rs.12.5, the exchange ratio will be
Rs.25/ Rs.12.5 =2)
a) What are the pre-merger earnings and P/E ratios of both the companies?
b)If ABC?s P/E ratio is8, what is its current market price? What is the exchange ratio?
What will XYZ?s post-merger EPS be?
c) What must the exchange ratio be for XYZ?s post-merger EPS to be the same as its
EPS before the merger? [10]
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This post was last modified on 23 October 2020