Download BU (Bangalore University) MBA 2nd Semester 2017 July Financial Management Question Paper

Download BU (Bangalore University) MBA (Master of Business Administration) 2nd Semester 2017 July Financial Management Question Paper

llllllllllllllllllllillllllllllllll PG ? 872
ll Semester M.B.A. Degree Examination, July 2017
(CBCS) _
MANAGEMENT
2.5 : Financial Management
- Time : 3 Hours Max. Marks : 70
Instruction : Ans were]! the Sections.
SECTION ? A
Answerany five of the following questions. Each question carriess marks. (5x5=25)
1. When can there arise a conflict between shareholders? and managers? goals ?
How can it be resolved ?
2.? Briefly explain the features of Venture Capital.
3. Explain the factors influencing dividend policy.
4. The earnings per share of a company are Rs. 10. It has an internal rate of return
of 15% and the capitalization rate of its risk class is 12.5%. if Walter?s model is
used :
i) What shouid the optimum payout ratio of the firth ?
ii) What would be the price of the share at this payout ?
5. Assuming that a firm pays tax at a 40% tax rate, compute the after tax cost of
capital in the following cases :
_ a) A bond, sold at Rs. 100 with a 7 percent interest and a redemption price of
Rs. 110, if the company redeems it in 5 years.
b) An ordinary share, selling at a current market price of Rs. 120 and paying a
current dividend of Rs. 9 per share, which is expected to grow at a rate of 8% ?
6. Rao Corporation has a target capital structure of 60% equity and 40% debt. Its
cost of equity is 18% and its pre-tax cost of debt is 13%. If the relevant tax rate
. is 35%, what is Rao Corporation?s WACC ?
7. Explain the role of finance manager in the changing scenario of financiai
management in India.
P.T.O.

PG ? 872 .2. iillllllllllllllillllilllilllllllll
Answerany three of the following, each question carriesten marks.
8.
10.
SECTION ? B
?Finance function of a business is closely related to its other functions". Discuss
with suitable examples.
A firm?s sales, variable costs and 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 percent and
its equity capital totals Rs. 55,00,000.
a) What IS the firm? 5 ROI ?
b) Does it have a favorable financial leverage ?
c) If the firm belongs to an industry whose assetturnover is 3, does it have a
high or low asset leverage ?
d) What are the operating, financial and combined leverages of the firm ?
e) If the sales drop to Rs. 50,00,000, what will the new EBIT be ?
f) At what level will the EBT of the firm equal to zero ?
JKL Limited is considering the revision of its credit policy with a view to inc?reasing
its sales and profit. Currently all its sales are on credit and the Customers are
given one month's time to settle the dues. it has a contribution of 40% on sales
and it can raise additional funds at a cost of 20% per annum. The marketing
manager of the company has given the following options along with estimates
for considerations :
Particulars Current Position Option I Option ll Option Ill
Sales (in Lakh Rs.) 200 210 220 250
Credit period (in months) 1 1.5 2 3
Bad debts (?/o of sales) 2 2.5 3 5
Cost of credit administration
(in Rs. Lakhs) 1.20 1.30 1.50 3.00
You are required to advise the company for the best option.
(10x3=30)

||||||||||||| ||||||l|l||||||||||||| . .3 PG ? 872
11. A proforma cost sheet of a company provides the following particuiars :
- Amount per unit R)
Raw material 80
Direct labour 30
Overheads ?
Total cost ? 170
Profit 30
Selling price 200
The following fu rther particulars are available. Raw materials are in stock on an
average for one month, WIP on an average for half a month. Finished goods are
in stock on an average for one month.
Credit allowed by suppliers is one month, credit allowed to customers is two
months. Lag in payment of wages is 11/2 weeks (1.5), lag in payment of overhead
expenses is one month. One-forth of the output is sold against cash, cash in
hand and at bank is expected to be ? 25,000. You are required to prepare a
statement showing the working capital needed to finance a level of activity of
1 ,04,000 units of production. You may assume that production is carried on evenly
throughout the year, wages and overheads accrue similarly and a time period of
4 weeks is equivalent to a month.
SECTION ? 0
12. Compulsory question E (1x15=15)
Case study : '
You are a financial analyst for Hitesh Co. Ltd. The Director of capital budgeting
has asked you to analyze thetwo proposed capital investments, Project X and
Project Y. Each project has a cost of Rs. 2 million and the cost of capital for
each project is 12%. The project?s expected profit before depreciation and taxes
are :
Year . ProjectX(PBDT) , ProjectY(PBDT)
1 ? ? 8,00,000 15,00,000
2 23,00,000 10,00,000
? 3 8,00,000 6,00,000
4 8,00,000 200,000
a) Calculate Pay Back Period, Net Present Value and Profitability Index.
b) Which project/projects should be accepted if they are independent ?