Download BU (Bangalore University) MBA 2nd Semester 2016 July Financial Management Question Paper

Download BU (Bangalore University) MBA (Master of Business Administration) 2nd Semester 2016 July Financial Management Question Paper

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II Semester MBA. Degree Examination, July 2016
(CBCS) ?
MANAGEMENT
2.5 : Financial Management
Time : 3 Hours Max. Marks : 7O
SECTION?A
Answerany five of the following questions. Each question carries five marks. (5x5=25)
1.
Explain the various types of decisions which are to taken by financial manager in
the emerging business scenario.
. Discuss any five factors relevant in determining capital structure.
. Why dividend policy is important for a company ? Explain.
A company has Rs. 20,00,000 6% Debentures outstanding today, which will be
redeemed after 5 years. For redemption the company established a sinking fund
and its investments earn interest @ 10% p.a. What annual payment must the
firm make to ensure that the needed Rs. 20,00,000 available on the designated
date.
The capital structure of Bombay Traders Ltd. as on 31 -3-201 5 is as follows
Rs. in crores
Equity capital : 100 lakh equity shares of Rs. 10 each 10
Retained Earnings 2
14% debentures . 3
For the year ended 31 -3-201 5 the company has paid a equity dividend at 20%
and the growth rate is 5% every year. The equity shares are traded at Rs. 80 per
share in the stock exchange. Tax rate applicable to the company is 40%. Calculate
the current weighted average cost of capital.
P.T.O.

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6. The following details of ABC Ltd. for the year ended 31 -3-201 5 are furnished.
Operating leverage 3
Financial leverage 2
Interest charges p.a. Rs. 20 lakhs
Corporate tax 40%
Variable cost as a % of sales 60%
Prepare the IncomeStatement of the company.
7. A company sells 40,000 units of its product per year @ Rs. 35 per unit. The
variable cost per unit is Rs. 28. The average collection period is 60 days. Bad
debt losses are 3% on sales and the collection charges amount to Rs. 15,000.
The company is considering the proposal to follow stricter collection policy which
would bring down bad debts to 1% of sales and average collection period to 45
days. It would however, reduce the sales volume by 1000 units and increase the
collection expenses to Rs. 25,000.
The company requires a rate of return of 20% would you recommend the adoption
of the new credit policy ?
SECTION ? B
Answerany three of the following questions. Each questions carriesten marks. (3x10=30)
8. What is working capital policy ? Explain the different types of working capital
policies of the business firm.
9. ?Walter?s model asserts that retentions influence stock price only through their
effect on future dividends? ? Discuss.
10. XYZ Ltd. is considering three financing plans.
Financial Plan Equity Debt Preference
A 100% ? ?
B 50% 50% ?
C 50% ? 50%

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11.
12.
Total funds to be raised Rs. 200 crores
Rate of Interest on debt 12%
Corporate tax rate 35%
Dividend on preference shares 9%
Face value of equity share Rs. 10 each.
These shares will be issued at a
premium of Rs. 10 per share
Expected E.B.i.T Rs. 80 crore
Determine:
i) E.P.S. undereach plan
ii) Indifference points between financial plans A and B and A and C.
Capro industries plans an investment of Rs. 75,000 in a new machinery that
would produce inflow of Rs. 25,000 every year for 5 years. The representative of
another equipment manufacturer presents an alternative proposal. By investing
Rs. 1,630,000 in his company?s equipment Capro industries can obtain a cash
inflow of Rs. 50,000 every year for five years. In future, an investment of this
type can be expected to, yield a discounted rate of return of 12%.
You are required to find :
a) Which alternative is more attractive if a discounted rate of 12% is expected ?
b) The discounted rate of return on investment alternatives.
0) Discounted rate of return on incremental investment.
SECTION?C
Case study ? Compulsory.
XYZ Ltd. is presently operating at 60% level producing 36000 units and proposes
to increase capacity utilization in the coming year 33%3 % over the existing level
of production. The following data has been supplied.
a) The expected ratio?s of cost to selling price are :
Raw material ? 40%
Direct wages ? 20%
Overheads ? 20%
15

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b) Selling price per unit Rs. 15.
0) Raw materials will remain in stores for 1 month. Material will remain in process
for further one month.
d) Suppliers grant 3 months credit to the company and debtors are allowed
2 months credit.
e) Finished goods remain in godown for one month.
f) Lag in wages and overhead payment is one month.
Prepare a projected profitability statement and the working capital requirement
at the new level, assuming that a minimum cash balance of Rs. 50,000 has to be
maintained.