Download Anna University (AU) MBA ( Master of Business Administration) Important Question Bank 3rd Sem BA5013 Strategic Investment and Financing Decisions (Latest Important Questions Unit Wise)
?
DEPARTMENT OF MANAGEMENT STUDIES
QUESTION BANK
III SEMESTER
BA5013 ? STRATEGIC INVESTMENT AND FINANCING DECISIONS
Regulation ? 2017
Academic Year 2019 - 2020
Prepared by
Mrs. A. UmaDevi ? Asst. Professor
Mr. K. Suresh ? Asst. Professor
FirstRanker.com - FirstRanker's Choice
?
DEPARTMENT OF MANAGEMENT STUDIES
QUESTION BANK
III SEMESTER
BA5013 ? STRATEGIC INVESTMENT AND FINANCING DECISIONS
Regulation ? 2017
Academic Year 2019 - 2020
Prepared by
Mrs. A. UmaDevi ? Asst. Professor
Mr. K. Suresh ? Asst. Professor
? .
DEPARTMENT OFMANAGEMENT STUDIES
QUESTION BANK
SUBJECT : BA5013 ? STRATEGIC INVESTMENT AND FINANCING DECISIONS
SEM / YEAR : III Semester / II Year
UNIT ? I ? INVESTMENT DECISIONS
SYLLABUS: Project Investment Management Vs Project Management ? Introduction to profitable
projects ? evaluation of Investment opportunities ? Investment decisions under conditions of uncertainty
? Risk analysis in Investment decision ? Types of investments and disinvestments.
PART- A
S.NO QUESTIONS BT LEVEL COMPETENCE
1
What is Investment Management?
Level 1 Remembering
2
Compare Project Investment management and Project
Management.
Level 2 Understanding
3
Identify the features of Investment decisions.
Level 3 Applying
4
Classify the different ways of evaluating investment
opportunities.
Level 4 Analysing
5
Give the objectives of profitable project.
Level 5 Evaluating
6
Can you assess the importance of discounted cash flow method?
Level 6 Creating
7
What is uncertainty in financial investment?
Level 1 Remembering
8
Distinguish RAD and CE.
Level 2 Understanding
9
Identify the different types of Investment.
Level 3 Applying
10
Summarize the concept of Capital Budgeting.
Level 4 Analysing
11
Give five qualities required for successful investing.
Level 5 Evaluating
12
Interpret the objectives of Investment.
Level 6 Creating
13
Define Project Management.
Level 1 Remembering
14
Distinguish between systematic & unsystematic risk.
Level 2 Understanding
15
How is Disinvestment undertaken?
Level 3 Applying
16
Classify the types of Disinvestments.
Level 4 Analysing
17
What are the principal methods employed for ascertaining the
profitability of capital expenditure project?
Level 1 Remembering
18
Differentiate Investment and Disinvestment.
Level 2 Understanding
19
Explain the term ?Project Profitability? in investment
management.
Level 1 Remembering
20
How do you measure risk by means of standard deviation &
Coefficient of Variance?
Level 1 Remembering
FirstRanker.com - FirstRanker's Choice
?
DEPARTMENT OF MANAGEMENT STUDIES
QUESTION BANK
III SEMESTER
BA5013 ? STRATEGIC INVESTMENT AND FINANCING DECISIONS
Regulation ? 2017
Academic Year 2019 - 2020
Prepared by
Mrs. A. UmaDevi ? Asst. Professor
Mr. K. Suresh ? Asst. Professor
? .
DEPARTMENT OFMANAGEMENT STUDIES
QUESTION BANK
SUBJECT : BA5013 ? STRATEGIC INVESTMENT AND FINANCING DECISIONS
SEM / YEAR : III Semester / II Year
UNIT ? I ? INVESTMENT DECISIONS
SYLLABUS: Project Investment Management Vs Project Management ? Introduction to profitable
projects ? evaluation of Investment opportunities ? Investment decisions under conditions of uncertainty
? Risk analysis in Investment decision ? Types of investments and disinvestments.
PART- A
S.NO QUESTIONS BT LEVEL COMPETENCE
1
What is Investment Management?
Level 1 Remembering
2
Compare Project Investment management and Project
Management.
Level 2 Understanding
3
Identify the features of Investment decisions.
Level 3 Applying
4
Classify the different ways of evaluating investment
opportunities.
Level 4 Analysing
5
Give the objectives of profitable project.
Level 5 Evaluating
6
Can you assess the importance of discounted cash flow method?
Level 6 Creating
7
What is uncertainty in financial investment?
Level 1 Remembering
8
Distinguish RAD and CE.
Level 2 Understanding
9
Identify the different types of Investment.
Level 3 Applying
10
Summarize the concept of Capital Budgeting.
Level 4 Analysing
11
Give five qualities required for successful investing.
Level 5 Evaluating
12
Interpret the objectives of Investment.
Level 6 Creating
13
Define Project Management.
Level 1 Remembering
14
Distinguish between systematic & unsystematic risk.
Level 2 Understanding
15
How is Disinvestment undertaken?
Level 3 Applying
16
Classify the types of Disinvestments.
Level 4 Analysing
17
What are the principal methods employed for ascertaining the
profitability of capital expenditure project?
Level 1 Remembering
18
Differentiate Investment and Disinvestment.
Level 2 Understanding
19
Explain the term ?Project Profitability? in investment
management.
Level 1 Remembering
20
How do you measure risk by means of standard deviation &
Coefficient of Variance?
Level 1 Remembering
PART- B
S.NO QUESTIONS BT LEVEL COMPETENCE
1
What key issues are examined while making a major
Investment decision?
Level 1 Remembering
2 Identify the different types of investments and its features. Level 2 Understanding
3 Explain the different kinds of project risks. Level 3 Applying
4
i) Discuss the steps involved in Simulation analysis. (5
marks)
Level 4 Analysing
ii) What are the pros and cons of simulation analysis? (8
marks)
5
Critically examine how you would assess the profitability of
a project.
Level 5 Evaluating
6.
Interpret Sensitivity analysis method of investment analysis
with an example.
Level 6 Creating
7
How will you analyze the risk before taking any investment
decision?
Level 1 Remembering
8 Discuss the disinvestment methods available for corporates. Level 2 Understanding
9 Describe the advantages of investments. Level 3 Applying
10 Explain the evaluation of Investment Opportunities. Level 4 Analysing
11
?Risk analysis is an essential feature of investment decision
making process?. What are the major risk factors and how
will you control them?
Level 1 Remembering
12
Define Capital budgeting. Explain briefly the various risk
management techniques in capital budgeting with
illustrations.
Level 2 Understanding
13
X company is considering two projects M&N, each of which
require an initial outlay of Rs.50 lakhs. The expected cash
inflows from these projects are:
Year Project M Project N
1 12 37
2 18 24
3 33 19
4 36 12
1. What is the PBP for each of the project?
2. If the two projects are mutually exclusive and the cost of
capital is 15%. Which project should the firm invest in?
3. If cost of capital is 14%, What is the modified IRR of
each project?
Level 4 Analysing
FirstRanker.com - FirstRanker's Choice
?
DEPARTMENT OF MANAGEMENT STUDIES
QUESTION BANK
III SEMESTER
BA5013 ? STRATEGIC INVESTMENT AND FINANCING DECISIONS
Regulation ? 2017
Academic Year 2019 - 2020
Prepared by
Mrs. A. UmaDevi ? Asst. Professor
Mr. K. Suresh ? Asst. Professor
? .
DEPARTMENT OFMANAGEMENT STUDIES
QUESTION BANK
SUBJECT : BA5013 ? STRATEGIC INVESTMENT AND FINANCING DECISIONS
SEM / YEAR : III Semester / II Year
UNIT ? I ? INVESTMENT DECISIONS
SYLLABUS: Project Investment Management Vs Project Management ? Introduction to profitable
projects ? evaluation of Investment opportunities ? Investment decisions under conditions of uncertainty
? Risk analysis in Investment decision ? Types of investments and disinvestments.
PART- A
S.NO QUESTIONS BT LEVEL COMPETENCE
1
What is Investment Management?
Level 1 Remembering
2
Compare Project Investment management and Project
Management.
Level 2 Understanding
3
Identify the features of Investment decisions.
Level 3 Applying
4
Classify the different ways of evaluating investment
opportunities.
Level 4 Analysing
5
Give the objectives of profitable project.
Level 5 Evaluating
6
Can you assess the importance of discounted cash flow method?
Level 6 Creating
7
What is uncertainty in financial investment?
Level 1 Remembering
8
Distinguish RAD and CE.
Level 2 Understanding
9
Identify the different types of Investment.
Level 3 Applying
10
Summarize the concept of Capital Budgeting.
Level 4 Analysing
11
Give five qualities required for successful investing.
Level 5 Evaluating
12
Interpret the objectives of Investment.
Level 6 Creating
13
Define Project Management.
Level 1 Remembering
14
Distinguish between systematic & unsystematic risk.
Level 2 Understanding
15
How is Disinvestment undertaken?
Level 3 Applying
16
Classify the types of Disinvestments.
Level 4 Analysing
17
What are the principal methods employed for ascertaining the
profitability of capital expenditure project?
Level 1 Remembering
18
Differentiate Investment and Disinvestment.
Level 2 Understanding
19
Explain the term ?Project Profitability? in investment
management.
Level 1 Remembering
20
How do you measure risk by means of standard deviation &
Coefficient of Variance?
Level 1 Remembering
PART- B
S.NO QUESTIONS BT LEVEL COMPETENCE
1
What key issues are examined while making a major
Investment decision?
Level 1 Remembering
2 Identify the different types of investments and its features. Level 2 Understanding
3 Explain the different kinds of project risks. Level 3 Applying
4
i) Discuss the steps involved in Simulation analysis. (5
marks)
Level 4 Analysing
ii) What are the pros and cons of simulation analysis? (8
marks)
5
Critically examine how you would assess the profitability of
a project.
Level 5 Evaluating
6.
Interpret Sensitivity analysis method of investment analysis
with an example.
Level 6 Creating
7
How will you analyze the risk before taking any investment
decision?
Level 1 Remembering
8 Discuss the disinvestment methods available for corporates. Level 2 Understanding
9 Describe the advantages of investments. Level 3 Applying
10 Explain the evaluation of Investment Opportunities. Level 4 Analysing
11
?Risk analysis is an essential feature of investment decision
making process?. What are the major risk factors and how
will you control them?
Level 1 Remembering
12
Define Capital budgeting. Explain briefly the various risk
management techniques in capital budgeting with
illustrations.
Level 2 Understanding
13
X company is considering two projects M&N, each of which
require an initial outlay of Rs.50 lakhs. The expected cash
inflows from these projects are:
Year Project M Project N
1 12 37
2 18 24
3 33 19
4 36 12
1. What is the PBP for each of the project?
2. If the two projects are mutually exclusive and the cost of
capital is 15%. Which project should the firm invest in?
3. If cost of capital is 14%, What is the modified IRR of
each project?
Level 4 Analysing
14
From the following information, ascertain which project
should be selected on the basis of standard deviation.
Project X Project Y
Cash
Inflow
Probability
Cash
Inflow
Probability
3200 0.2 2400 0.1
5500 0.3 7400 0.4
7400 0.3 8800 0.4
8900 0.2 5500 0.1
Level 1 Remembering
PART - C
S.NO QUESTIONS
1
Capital expenditure decisions are by far the most important decisions in the field of management. Illustrate
2
There are 3 securities X, Y, and Z. The returns are given as below; Select the securities based on risk and
return. Calculate average returns, variance and standard deviation.
Security X 30 20 22 33 15
Security Y -20 10 20 10 20
Security Z -20 -10 -5 10 30
3
Is there any difference between risk and uncertainty? Elucidate about capital budgeting decisions in an
organization.
4
How can Utility theory be incorporated in the capital budgeting decision to account for the risk preferences
of the decision maker?
UNIT ? II ? CRITICAL ANALYSIS OF APPRAISAL TECHNIQUES
SYLLABUS: Significance of Information and data bank in project selections ? Investment decisions
under capital constraints ? capital rationing, Portfolio ? Portfolio risk and diversified projects.
PART- A
S.NO QUESTIONS BT LEVEL COMPETENCE
1
Define Capital rationing.
Level 1 Remembering
2 Compare capital constraint on risk analysis. Level 2 Understanding
3
Identify the different steps in decision tree.
Level 3 Applying
4 Classify the different ways of evaluating project selection. Level 4 Analysing
5 Give the objectives of data bank in project selection. Level 5 Evaluating
6
Can you assess the importance of data bank in project
selection?
Level 6 Creating
7
What is meant by Capital constraint?
Level 1 Remembering
FirstRanker.com - FirstRanker's Choice
?
DEPARTMENT OF MANAGEMENT STUDIES
QUESTION BANK
III SEMESTER
BA5013 ? STRATEGIC INVESTMENT AND FINANCING DECISIONS
Regulation ? 2017
Academic Year 2019 - 2020
Prepared by
Mrs. A. UmaDevi ? Asst. Professor
Mr. K. Suresh ? Asst. Professor
? .
DEPARTMENT OFMANAGEMENT STUDIES
QUESTION BANK
SUBJECT : BA5013 ? STRATEGIC INVESTMENT AND FINANCING DECISIONS
SEM / YEAR : III Semester / II Year
UNIT ? I ? INVESTMENT DECISIONS
SYLLABUS: Project Investment Management Vs Project Management ? Introduction to profitable
projects ? evaluation of Investment opportunities ? Investment decisions under conditions of uncertainty
? Risk analysis in Investment decision ? Types of investments and disinvestments.
PART- A
S.NO QUESTIONS BT LEVEL COMPETENCE
1
What is Investment Management?
Level 1 Remembering
2
Compare Project Investment management and Project
Management.
Level 2 Understanding
3
Identify the features of Investment decisions.
Level 3 Applying
4
Classify the different ways of evaluating investment
opportunities.
Level 4 Analysing
5
Give the objectives of profitable project.
Level 5 Evaluating
6
Can you assess the importance of discounted cash flow method?
Level 6 Creating
7
What is uncertainty in financial investment?
Level 1 Remembering
8
Distinguish RAD and CE.
Level 2 Understanding
9
Identify the different types of Investment.
Level 3 Applying
10
Summarize the concept of Capital Budgeting.
Level 4 Analysing
11
Give five qualities required for successful investing.
Level 5 Evaluating
12
Interpret the objectives of Investment.
Level 6 Creating
13
Define Project Management.
Level 1 Remembering
14
Distinguish between systematic & unsystematic risk.
Level 2 Understanding
15
How is Disinvestment undertaken?
Level 3 Applying
16
Classify the types of Disinvestments.
Level 4 Analysing
17
What are the principal methods employed for ascertaining the
profitability of capital expenditure project?
Level 1 Remembering
18
Differentiate Investment and Disinvestment.
Level 2 Understanding
19
Explain the term ?Project Profitability? in investment
management.
Level 1 Remembering
20
How do you measure risk by means of standard deviation &
Coefficient of Variance?
Level 1 Remembering
PART- B
S.NO QUESTIONS BT LEVEL COMPETENCE
1
What key issues are examined while making a major
Investment decision?
Level 1 Remembering
2 Identify the different types of investments and its features. Level 2 Understanding
3 Explain the different kinds of project risks. Level 3 Applying
4
i) Discuss the steps involved in Simulation analysis. (5
marks)
Level 4 Analysing
ii) What are the pros and cons of simulation analysis? (8
marks)
5
Critically examine how you would assess the profitability of
a project.
Level 5 Evaluating
6.
Interpret Sensitivity analysis method of investment analysis
with an example.
Level 6 Creating
7
How will you analyze the risk before taking any investment
decision?
Level 1 Remembering
8 Discuss the disinvestment methods available for corporates. Level 2 Understanding
9 Describe the advantages of investments. Level 3 Applying
10 Explain the evaluation of Investment Opportunities. Level 4 Analysing
11
?Risk analysis is an essential feature of investment decision
making process?. What are the major risk factors and how
will you control them?
Level 1 Remembering
12
Define Capital budgeting. Explain briefly the various risk
management techniques in capital budgeting with
illustrations.
Level 2 Understanding
13
X company is considering two projects M&N, each of which
require an initial outlay of Rs.50 lakhs. The expected cash
inflows from these projects are:
Year Project M Project N
1 12 37
2 18 24
3 33 19
4 36 12
1. What is the PBP for each of the project?
2. If the two projects are mutually exclusive and the cost of
capital is 15%. Which project should the firm invest in?
3. If cost of capital is 14%, What is the modified IRR of
each project?
Level 4 Analysing
14
From the following information, ascertain which project
should be selected on the basis of standard deviation.
Project X Project Y
Cash
Inflow
Probability
Cash
Inflow
Probability
3200 0.2 2400 0.1
5500 0.3 7400 0.4
7400 0.3 8800 0.4
8900 0.2 5500 0.1
Level 1 Remembering
PART - C
S.NO QUESTIONS
1
Capital expenditure decisions are by far the most important decisions in the field of management. Illustrate
2
There are 3 securities X, Y, and Z. The returns are given as below; Select the securities based on risk and
return. Calculate average returns, variance and standard deviation.
Security X 30 20 22 33 15
Security Y -20 10 20 10 20
Security Z -20 -10 -5 10 30
3
Is there any difference between risk and uncertainty? Elucidate about capital budgeting decisions in an
organization.
4
How can Utility theory be incorporated in the capital budgeting decision to account for the risk preferences
of the decision maker?
UNIT ? II ? CRITICAL ANALYSIS OF APPRAISAL TECHNIQUES
SYLLABUS: Significance of Information and data bank in project selections ? Investment decisions
under capital constraints ? capital rationing, Portfolio ? Portfolio risk and diversified projects.
PART- A
S.NO QUESTIONS BT LEVEL COMPETENCE
1
Define Capital rationing.
Level 1 Remembering
2 Compare capital constraint on risk analysis. Level 2 Understanding
3
Identify the different steps in decision tree.
Level 3 Applying
4 Classify the different ways of evaluating project selection. Level 4 Analysing
5 Give the objectives of data bank in project selection. Level 5 Evaluating
6
Can you assess the importance of data bank in project
selection?
Level 6 Creating
7
What is meant by Capital constraint?
Level 1 Remembering
8
Draw a decision tree & illustrate.
Level 2 Understanding
9
Identify the steps in Simulation analysis.
Level 3 Applying
10 What is Capital constraint? Level 4 Analysing
11
Give a note on risky investments.
Level 5 Evaluating
12
Interpret the objectives of project selection.
Level 6 Creating
13 Define Capital rationing. Level 1 Remembering
14
Compare portfolio risk & diversification.
Level 2 Understanding
15
How is Portfolio diversification undertaken?
Level 3 Applying
16 Identify the features of diversification. Level 4 Analysing
17
What are the advantages & disadvantages of decision tree
approach?
Level 1 Remembering
18
Write down the need for portfolio diversification.
Level 2 Understanding
19
What is portfolio risk?
Level 1 Remembering
20 How do you measure risk by means of Sensitivity analysis? Level 1 Remembering
PART- B
S.NO QUESTIONS BT LEVEL COMPETENCE
1
Discuss about examination of the secondary information for
reliability and relevance for the consideration purpose.
Level 1 Remembering
2
Narrate the various techniques used to construct a good
portfolio.
Level 2 Understanding
3
Elucidate the various techniques available for incorporating
risk factor in capital investment proposals with practical
examples.
Level 3 Applying
4 Explain the programming approach to capital rationing. Level 4 Analysing
5
From the following information state which project is
preferred? Two alternative projects are available (project X
and project Y) each costing Rs.10,00,000. The company has a
target return on capital (riskless discount rate) of 10%. The
management considers risk premium rate at 2 percent and 8
percent respectively, project X and project Y.
Year 1 2 3 4
Project X 400000 350000 250000 200000
Project Y 500000 400000 300000 200000
Level 5 Evaluating
FirstRanker.com - FirstRanker's Choice
?
DEPARTMENT OF MANAGEMENT STUDIES
QUESTION BANK
III SEMESTER
BA5013 ? STRATEGIC INVESTMENT AND FINANCING DECISIONS
Regulation ? 2017
Academic Year 2019 - 2020
Prepared by
Mrs. A. UmaDevi ? Asst. Professor
Mr. K. Suresh ? Asst. Professor
? .
DEPARTMENT OFMANAGEMENT STUDIES
QUESTION BANK
SUBJECT : BA5013 ? STRATEGIC INVESTMENT AND FINANCING DECISIONS
SEM / YEAR : III Semester / II Year
UNIT ? I ? INVESTMENT DECISIONS
SYLLABUS: Project Investment Management Vs Project Management ? Introduction to profitable
projects ? evaluation of Investment opportunities ? Investment decisions under conditions of uncertainty
? Risk analysis in Investment decision ? Types of investments and disinvestments.
PART- A
S.NO QUESTIONS BT LEVEL COMPETENCE
1
What is Investment Management?
Level 1 Remembering
2
Compare Project Investment management and Project
Management.
Level 2 Understanding
3
Identify the features of Investment decisions.
Level 3 Applying
4
Classify the different ways of evaluating investment
opportunities.
Level 4 Analysing
5
Give the objectives of profitable project.
Level 5 Evaluating
6
Can you assess the importance of discounted cash flow method?
Level 6 Creating
7
What is uncertainty in financial investment?
Level 1 Remembering
8
Distinguish RAD and CE.
Level 2 Understanding
9
Identify the different types of Investment.
Level 3 Applying
10
Summarize the concept of Capital Budgeting.
Level 4 Analysing
11
Give five qualities required for successful investing.
Level 5 Evaluating
12
Interpret the objectives of Investment.
Level 6 Creating
13
Define Project Management.
Level 1 Remembering
14
Distinguish between systematic & unsystematic risk.
Level 2 Understanding
15
How is Disinvestment undertaken?
Level 3 Applying
16
Classify the types of Disinvestments.
Level 4 Analysing
17
What are the principal methods employed for ascertaining the
profitability of capital expenditure project?
Level 1 Remembering
18
Differentiate Investment and Disinvestment.
Level 2 Understanding
19
Explain the term ?Project Profitability? in investment
management.
Level 1 Remembering
20
How do you measure risk by means of standard deviation &
Coefficient of Variance?
Level 1 Remembering
PART- B
S.NO QUESTIONS BT LEVEL COMPETENCE
1
What key issues are examined while making a major
Investment decision?
Level 1 Remembering
2 Identify the different types of investments and its features. Level 2 Understanding
3 Explain the different kinds of project risks. Level 3 Applying
4
i) Discuss the steps involved in Simulation analysis. (5
marks)
Level 4 Analysing
ii) What are the pros and cons of simulation analysis? (8
marks)
5
Critically examine how you would assess the profitability of
a project.
Level 5 Evaluating
6.
Interpret Sensitivity analysis method of investment analysis
with an example.
Level 6 Creating
7
How will you analyze the risk before taking any investment
decision?
Level 1 Remembering
8 Discuss the disinvestment methods available for corporates. Level 2 Understanding
9 Describe the advantages of investments. Level 3 Applying
10 Explain the evaluation of Investment Opportunities. Level 4 Analysing
11
?Risk analysis is an essential feature of investment decision
making process?. What are the major risk factors and how
will you control them?
Level 1 Remembering
12
Define Capital budgeting. Explain briefly the various risk
management techniques in capital budgeting with
illustrations.
Level 2 Understanding
13
X company is considering two projects M&N, each of which
require an initial outlay of Rs.50 lakhs. The expected cash
inflows from these projects are:
Year Project M Project N
1 12 37
2 18 24
3 33 19
4 36 12
1. What is the PBP for each of the project?
2. If the two projects are mutually exclusive and the cost of
capital is 15%. Which project should the firm invest in?
3. If cost of capital is 14%, What is the modified IRR of
each project?
Level 4 Analysing
14
From the following information, ascertain which project
should be selected on the basis of standard deviation.
Project X Project Y
Cash
Inflow
Probability
Cash
Inflow
Probability
3200 0.2 2400 0.1
5500 0.3 7400 0.4
7400 0.3 8800 0.4
8900 0.2 5500 0.1
Level 1 Remembering
PART - C
S.NO QUESTIONS
1
Capital expenditure decisions are by far the most important decisions in the field of management. Illustrate
2
There are 3 securities X, Y, and Z. The returns are given as below; Select the securities based on risk and
return. Calculate average returns, variance and standard deviation.
Security X 30 20 22 33 15
Security Y -20 10 20 10 20
Security Z -20 -10 -5 10 30
3
Is there any difference between risk and uncertainty? Elucidate about capital budgeting decisions in an
organization.
4
How can Utility theory be incorporated in the capital budgeting decision to account for the risk preferences
of the decision maker?
UNIT ? II ? CRITICAL ANALYSIS OF APPRAISAL TECHNIQUES
SYLLABUS: Significance of Information and data bank in project selections ? Investment decisions
under capital constraints ? capital rationing, Portfolio ? Portfolio risk and diversified projects.
PART- A
S.NO QUESTIONS BT LEVEL COMPETENCE
1
Define Capital rationing.
Level 1 Remembering
2 Compare capital constraint on risk analysis. Level 2 Understanding
3
Identify the different steps in decision tree.
Level 3 Applying
4 Classify the different ways of evaluating project selection. Level 4 Analysing
5 Give the objectives of data bank in project selection. Level 5 Evaluating
6
Can you assess the importance of data bank in project
selection?
Level 6 Creating
7
What is meant by Capital constraint?
Level 1 Remembering
8
Draw a decision tree & illustrate.
Level 2 Understanding
9
Identify the steps in Simulation analysis.
Level 3 Applying
10 What is Capital constraint? Level 4 Analysing
11
Give a note on risky investments.
Level 5 Evaluating
12
Interpret the objectives of project selection.
Level 6 Creating
13 Define Capital rationing. Level 1 Remembering
14
Compare portfolio risk & diversification.
Level 2 Understanding
15
How is Portfolio diversification undertaken?
Level 3 Applying
16 Identify the features of diversification. Level 4 Analysing
17
What are the advantages & disadvantages of decision tree
approach?
Level 1 Remembering
18
Write down the need for portfolio diversification.
Level 2 Understanding
19
What is portfolio risk?
Level 1 Remembering
20 How do you measure risk by means of Sensitivity analysis? Level 1 Remembering
PART- B
S.NO QUESTIONS BT LEVEL COMPETENCE
1
Discuss about examination of the secondary information for
reliability and relevance for the consideration purpose.
Level 1 Remembering
2
Narrate the various techniques used to construct a good
portfolio.
Level 2 Understanding
3
Elucidate the various techniques available for incorporating
risk factor in capital investment proposals with practical
examples.
Level 3 Applying
4 Explain the programming approach to capital rationing. Level 4 Analysing
5
From the following information state which project is
preferred? Two alternative projects are available (project X
and project Y) each costing Rs.10,00,000. The company has a
target return on capital (riskless discount rate) of 10%. The
management considers risk premium rate at 2 percent and 8
percent respectively, project X and project Y.
Year 1 2 3 4
Project X 400000 350000 250000 200000
Project Y 500000 400000 300000 200000
Level 5 Evaluating
6.
From the under mentioned facts, compute the NPV of the
two projects for the each of the possible cash flows, using
Sensitivity Analysis.
Particulars
Project X
('000)
Project
Y ('000)
Initial Cash
Outlay (t0)
Rs 40 Rs 40
Cash flow
Estimates
(t-1-15)
Worst 6 0
Most
Likely
8 8
Best 10 16
Required Rate
of Return
0.1 0.1
Economic Life
(in years)
5 15
Level 6 Creating
7
M/S Zenith Enterprises is considering a project with the
following cash flows:
Year
Cost of Plant
(Rs.)
Running Cost
(Rs.)
Savings
(Rs.)
0 (7000)
1 2000 6000
2 2500 7000
The Cost of Capital of firm is 8%. Measure the sensitivity of
the project to changes in the levels of plant value, costs and
savings (considering each factor at a time) such that the net
present value of the project becomes zero. What factor is the
most sensitive to affect the acceptability of the project?
Level 1 Remembering
8
Mr. Selva is considering two mutually exclusive project ?X?
and ?Y?. You are required to advise him about the
acceptability of the projects from the following information.
The cut-off rate may be assumed to be 15%.
Project X Project Y
Cost of the Investment 1,00,000 1,00,000
Forecast cash inflows per
annum for 5 years
Optimistic 60000 55000
Most likely 35000 30000
Pessimistic 20000 20000
Level 2 Understanding
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?
DEPARTMENT OF MANAGEMENT STUDIES
QUESTION BANK
III SEMESTER
BA5013 ? STRATEGIC INVESTMENT AND FINANCING DECISIONS
Regulation ? 2017
Academic Year 2019 - 2020
Prepared by
Mrs. A. UmaDevi ? Asst. Professor
Mr. K. Suresh ? Asst. Professor
? .
DEPARTMENT OFMANAGEMENT STUDIES
QUESTION BANK
SUBJECT : BA5013 ? STRATEGIC INVESTMENT AND FINANCING DECISIONS
SEM / YEAR : III Semester / II Year
UNIT ? I ? INVESTMENT DECISIONS
SYLLABUS: Project Investment Management Vs Project Management ? Introduction to profitable
projects ? evaluation of Investment opportunities ? Investment decisions under conditions of uncertainty
? Risk analysis in Investment decision ? Types of investments and disinvestments.
PART- A
S.NO QUESTIONS BT LEVEL COMPETENCE
1
What is Investment Management?
Level 1 Remembering
2
Compare Project Investment management and Project
Management.
Level 2 Understanding
3
Identify the features of Investment decisions.
Level 3 Applying
4
Classify the different ways of evaluating investment
opportunities.
Level 4 Analysing
5
Give the objectives of profitable project.
Level 5 Evaluating
6
Can you assess the importance of discounted cash flow method?
Level 6 Creating
7
What is uncertainty in financial investment?
Level 1 Remembering
8
Distinguish RAD and CE.
Level 2 Understanding
9
Identify the different types of Investment.
Level 3 Applying
10
Summarize the concept of Capital Budgeting.
Level 4 Analysing
11
Give five qualities required for successful investing.
Level 5 Evaluating
12
Interpret the objectives of Investment.
Level 6 Creating
13
Define Project Management.
Level 1 Remembering
14
Distinguish between systematic & unsystematic risk.
Level 2 Understanding
15
How is Disinvestment undertaken?
Level 3 Applying
16
Classify the types of Disinvestments.
Level 4 Analysing
17
What are the principal methods employed for ascertaining the
profitability of capital expenditure project?
Level 1 Remembering
18
Differentiate Investment and Disinvestment.
Level 2 Understanding
19
Explain the term ?Project Profitability? in investment
management.
Level 1 Remembering
20
How do you measure risk by means of standard deviation &
Coefficient of Variance?
Level 1 Remembering
PART- B
S.NO QUESTIONS BT LEVEL COMPETENCE
1
What key issues are examined while making a major
Investment decision?
Level 1 Remembering
2 Identify the different types of investments and its features. Level 2 Understanding
3 Explain the different kinds of project risks. Level 3 Applying
4
i) Discuss the steps involved in Simulation analysis. (5
marks)
Level 4 Analysing
ii) What are the pros and cons of simulation analysis? (8
marks)
5
Critically examine how you would assess the profitability of
a project.
Level 5 Evaluating
6.
Interpret Sensitivity analysis method of investment analysis
with an example.
Level 6 Creating
7
How will you analyze the risk before taking any investment
decision?
Level 1 Remembering
8 Discuss the disinvestment methods available for corporates. Level 2 Understanding
9 Describe the advantages of investments. Level 3 Applying
10 Explain the evaluation of Investment Opportunities. Level 4 Analysing
11
?Risk analysis is an essential feature of investment decision
making process?. What are the major risk factors and how
will you control them?
Level 1 Remembering
12
Define Capital budgeting. Explain briefly the various risk
management techniques in capital budgeting with
illustrations.
Level 2 Understanding
13
X company is considering two projects M&N, each of which
require an initial outlay of Rs.50 lakhs. The expected cash
inflows from these projects are:
Year Project M Project N
1 12 37
2 18 24
3 33 19
4 36 12
1. What is the PBP for each of the project?
2. If the two projects are mutually exclusive and the cost of
capital is 15%. Which project should the firm invest in?
3. If cost of capital is 14%, What is the modified IRR of
each project?
Level 4 Analysing
14
From the following information, ascertain which project
should be selected on the basis of standard deviation.
Project X Project Y
Cash
Inflow
Probability
Cash
Inflow
Probability
3200 0.2 2400 0.1
5500 0.3 7400 0.4
7400 0.3 8800 0.4
8900 0.2 5500 0.1
Level 1 Remembering
PART - C
S.NO QUESTIONS
1
Capital expenditure decisions are by far the most important decisions in the field of management. Illustrate
2
There are 3 securities X, Y, and Z. The returns are given as below; Select the securities based on risk and
return. Calculate average returns, variance and standard deviation.
Security X 30 20 22 33 15
Security Y -20 10 20 10 20
Security Z -20 -10 -5 10 30
3
Is there any difference between risk and uncertainty? Elucidate about capital budgeting decisions in an
organization.
4
How can Utility theory be incorporated in the capital budgeting decision to account for the risk preferences
of the decision maker?
UNIT ? II ? CRITICAL ANALYSIS OF APPRAISAL TECHNIQUES
SYLLABUS: Significance of Information and data bank in project selections ? Investment decisions
under capital constraints ? capital rationing, Portfolio ? Portfolio risk and diversified projects.
PART- A
S.NO QUESTIONS BT LEVEL COMPETENCE
1
Define Capital rationing.
Level 1 Remembering
2 Compare capital constraint on risk analysis. Level 2 Understanding
3
Identify the different steps in decision tree.
Level 3 Applying
4 Classify the different ways of evaluating project selection. Level 4 Analysing
5 Give the objectives of data bank in project selection. Level 5 Evaluating
6
Can you assess the importance of data bank in project
selection?
Level 6 Creating
7
What is meant by Capital constraint?
Level 1 Remembering
8
Draw a decision tree & illustrate.
Level 2 Understanding
9
Identify the steps in Simulation analysis.
Level 3 Applying
10 What is Capital constraint? Level 4 Analysing
11
Give a note on risky investments.
Level 5 Evaluating
12
Interpret the objectives of project selection.
Level 6 Creating
13 Define Capital rationing. Level 1 Remembering
14
Compare portfolio risk & diversification.
Level 2 Understanding
15
How is Portfolio diversification undertaken?
Level 3 Applying
16 Identify the features of diversification. Level 4 Analysing
17
What are the advantages & disadvantages of decision tree
approach?
Level 1 Remembering
18
Write down the need for portfolio diversification.
Level 2 Understanding
19
What is portfolio risk?
Level 1 Remembering
20 How do you measure risk by means of Sensitivity analysis? Level 1 Remembering
PART- B
S.NO QUESTIONS BT LEVEL COMPETENCE
1
Discuss about examination of the secondary information for
reliability and relevance for the consideration purpose.
Level 1 Remembering
2
Narrate the various techniques used to construct a good
portfolio.
Level 2 Understanding
3
Elucidate the various techniques available for incorporating
risk factor in capital investment proposals with practical
examples.
Level 3 Applying
4 Explain the programming approach to capital rationing. Level 4 Analysing
5
From the following information state which project is
preferred? Two alternative projects are available (project X
and project Y) each costing Rs.10,00,000. The company has a
target return on capital (riskless discount rate) of 10%. The
management considers risk premium rate at 2 percent and 8
percent respectively, project X and project Y.
Year 1 2 3 4
Project X 400000 350000 250000 200000
Project Y 500000 400000 300000 200000
Level 5 Evaluating
6.
From the under mentioned facts, compute the NPV of the
two projects for the each of the possible cash flows, using
Sensitivity Analysis.
Particulars
Project X
('000)
Project
Y ('000)
Initial Cash
Outlay (t0)
Rs 40 Rs 40
Cash flow
Estimates
(t-1-15)
Worst 6 0
Most
Likely
8 8
Best 10 16
Required Rate
of Return
0.1 0.1
Economic Life
(in years)
5 15
Level 6 Creating
7
M/S Zenith Enterprises is considering a project with the
following cash flows:
Year
Cost of Plant
(Rs.)
Running Cost
(Rs.)
Savings
(Rs.)
0 (7000)
1 2000 6000
2 2500 7000
The Cost of Capital of firm is 8%. Measure the sensitivity of
the project to changes in the levels of plant value, costs and
savings (considering each factor at a time) such that the net
present value of the project becomes zero. What factor is the
most sensitive to affect the acceptability of the project?
Level 1 Remembering
8
Mr. Selva is considering two mutually exclusive project ?X?
and ?Y?. You are required to advise him about the
acceptability of the projects from the following information.
The cut-off rate may be assumed to be 15%.
Project X Project Y
Cost of the Investment 1,00,000 1,00,000
Forecast cash inflows per
annum for 5 years
Optimistic 60000 55000
Most likely 35000 30000
Pessimistic 20000 20000
Level 2 Understanding
9
A company is considering two mutually exclusive projects,
both require an initial cash outlay of Rs. 10,000 each and have
a life of 5 years. The company?s required rate of return 10%
and pays tax at 50 %. The project will be depreciated on a
straight-line basis. The before tax cash flows expected to be
generated by the project are as follows.
Before tax cash flows:
Year Project A Project B
1 4,000 5,000
2 4,000 5,000
3 4,000 2,000
4 4,000 5,000
5 4,000 5,000
Calculate for each project: (i) PBP (ii) NPV (iii) PI. Which
project should be accepted and why?
Level 3 Applying
10
Determine the payback period from the following cash flows
Year CFAT
0 100000
1 20000
2 30000
3 40000
4 50000
5 60000
Level 4 Analysing
11
How the principles of capital rationing are considered as best
evaluation technique under such circumstances?
Level 1 Remembering
12 What are the circumstances NPV & IRR differ? Level 2 Understanding
13
How would you select the investment projects under one-
period capital constraints?
Level 4 Analysing
14
X ltd has five projects. Details are given below. Rank the
five projects based on NPV and IRR. The discount rate is
10%.
Project
Investment
Outlay (Rs.)
Expected
Annual Cash
Inflow (Rs.)
Project
life(years)
M
50,000 18,000 10
N 1,00,000 50,000 4
O 1,20,000 30,000 8
P 1,50,000 40,000 16
Q 2,00,000 30,000 25
Level 1 Remembering
FirstRanker.com - FirstRanker's Choice
?
DEPARTMENT OF MANAGEMENT STUDIES
QUESTION BANK
III SEMESTER
BA5013 ? STRATEGIC INVESTMENT AND FINANCING DECISIONS
Regulation ? 2017
Academic Year 2019 - 2020
Prepared by
Mrs. A. UmaDevi ? Asst. Professor
Mr. K. Suresh ? Asst. Professor
? .
DEPARTMENT OFMANAGEMENT STUDIES
QUESTION BANK
SUBJECT : BA5013 ? STRATEGIC INVESTMENT AND FINANCING DECISIONS
SEM / YEAR : III Semester / II Year
UNIT ? I ? INVESTMENT DECISIONS
SYLLABUS: Project Investment Management Vs Project Management ? Introduction to profitable
projects ? evaluation of Investment opportunities ? Investment decisions under conditions of uncertainty
? Risk analysis in Investment decision ? Types of investments and disinvestments.
PART- A
S.NO QUESTIONS BT LEVEL COMPETENCE
1
What is Investment Management?
Level 1 Remembering
2
Compare Project Investment management and Project
Management.
Level 2 Understanding
3
Identify the features of Investment decisions.
Level 3 Applying
4
Classify the different ways of evaluating investment
opportunities.
Level 4 Analysing
5
Give the objectives of profitable project.
Level 5 Evaluating
6
Can you assess the importance of discounted cash flow method?
Level 6 Creating
7
What is uncertainty in financial investment?
Level 1 Remembering
8
Distinguish RAD and CE.
Level 2 Understanding
9
Identify the different types of Investment.
Level 3 Applying
10
Summarize the concept of Capital Budgeting.
Level 4 Analysing
11
Give five qualities required for successful investing.
Level 5 Evaluating
12
Interpret the objectives of Investment.
Level 6 Creating
13
Define Project Management.
Level 1 Remembering
14
Distinguish between systematic & unsystematic risk.
Level 2 Understanding
15
How is Disinvestment undertaken?
Level 3 Applying
16
Classify the types of Disinvestments.
Level 4 Analysing
17
What are the principal methods employed for ascertaining the
profitability of capital expenditure project?
Level 1 Remembering
18
Differentiate Investment and Disinvestment.
Level 2 Understanding
19
Explain the term ?Project Profitability? in investment
management.
Level 1 Remembering
20
How do you measure risk by means of standard deviation &
Coefficient of Variance?
Level 1 Remembering
PART- B
S.NO QUESTIONS BT LEVEL COMPETENCE
1
What key issues are examined while making a major
Investment decision?
Level 1 Remembering
2 Identify the different types of investments and its features. Level 2 Understanding
3 Explain the different kinds of project risks. Level 3 Applying
4
i) Discuss the steps involved in Simulation analysis. (5
marks)
Level 4 Analysing
ii) What are the pros and cons of simulation analysis? (8
marks)
5
Critically examine how you would assess the profitability of
a project.
Level 5 Evaluating
6.
Interpret Sensitivity analysis method of investment analysis
with an example.
Level 6 Creating
7
How will you analyze the risk before taking any investment
decision?
Level 1 Remembering
8 Discuss the disinvestment methods available for corporates. Level 2 Understanding
9 Describe the advantages of investments. Level 3 Applying
10 Explain the evaluation of Investment Opportunities. Level 4 Analysing
11
?Risk analysis is an essential feature of investment decision
making process?. What are the major risk factors and how
will you control them?
Level 1 Remembering
12
Define Capital budgeting. Explain briefly the various risk
management techniques in capital budgeting with
illustrations.
Level 2 Understanding
13
X company is considering two projects M&N, each of which
require an initial outlay of Rs.50 lakhs. The expected cash
inflows from these projects are:
Year Project M Project N
1 12 37
2 18 24
3 33 19
4 36 12
1. What is the PBP for each of the project?
2. If the two projects are mutually exclusive and the cost of
capital is 15%. Which project should the firm invest in?
3. If cost of capital is 14%, What is the modified IRR of
each project?
Level 4 Analysing
14
From the following information, ascertain which project
should be selected on the basis of standard deviation.
Project X Project Y
Cash
Inflow
Probability
Cash
Inflow
Probability
3200 0.2 2400 0.1
5500 0.3 7400 0.4
7400 0.3 8800 0.4
8900 0.2 5500 0.1
Level 1 Remembering
PART - C
S.NO QUESTIONS
1
Capital expenditure decisions are by far the most important decisions in the field of management. Illustrate
2
There are 3 securities X, Y, and Z. The returns are given as below; Select the securities based on risk and
return. Calculate average returns, variance and standard deviation.
Security X 30 20 22 33 15
Security Y -20 10 20 10 20
Security Z -20 -10 -5 10 30
3
Is there any difference between risk and uncertainty? Elucidate about capital budgeting decisions in an
organization.
4
How can Utility theory be incorporated in the capital budgeting decision to account for the risk preferences
of the decision maker?
UNIT ? II ? CRITICAL ANALYSIS OF APPRAISAL TECHNIQUES
SYLLABUS: Significance of Information and data bank in project selections ? Investment decisions
under capital constraints ? capital rationing, Portfolio ? Portfolio risk and diversified projects.
PART- A
S.NO QUESTIONS BT LEVEL COMPETENCE
1
Define Capital rationing.
Level 1 Remembering
2 Compare capital constraint on risk analysis. Level 2 Understanding
3
Identify the different steps in decision tree.
Level 3 Applying
4 Classify the different ways of evaluating project selection. Level 4 Analysing
5 Give the objectives of data bank in project selection. Level 5 Evaluating
6
Can you assess the importance of data bank in project
selection?
Level 6 Creating
7
What is meant by Capital constraint?
Level 1 Remembering
8
Draw a decision tree & illustrate.
Level 2 Understanding
9
Identify the steps in Simulation analysis.
Level 3 Applying
10 What is Capital constraint? Level 4 Analysing
11
Give a note on risky investments.
Level 5 Evaluating
12
Interpret the objectives of project selection.
Level 6 Creating
13 Define Capital rationing. Level 1 Remembering
14
Compare portfolio risk & diversification.
Level 2 Understanding
15
How is Portfolio diversification undertaken?
Level 3 Applying
16 Identify the features of diversification. Level 4 Analysing
17
What are the advantages & disadvantages of decision tree
approach?
Level 1 Remembering
18
Write down the need for portfolio diversification.
Level 2 Understanding
19
What is portfolio risk?
Level 1 Remembering
20 How do you measure risk by means of Sensitivity analysis? Level 1 Remembering
PART- B
S.NO QUESTIONS BT LEVEL COMPETENCE
1
Discuss about examination of the secondary information for
reliability and relevance for the consideration purpose.
Level 1 Remembering
2
Narrate the various techniques used to construct a good
portfolio.
Level 2 Understanding
3
Elucidate the various techniques available for incorporating
risk factor in capital investment proposals with practical
examples.
Level 3 Applying
4 Explain the programming approach to capital rationing. Level 4 Analysing
5
From the following information state which project is
preferred? Two alternative projects are available (project X
and project Y) each costing Rs.10,00,000. The company has a
target return on capital (riskless discount rate) of 10%. The
management considers risk premium rate at 2 percent and 8
percent respectively, project X and project Y.
Year 1 2 3 4
Project X 400000 350000 250000 200000
Project Y 500000 400000 300000 200000
Level 5 Evaluating
6.
From the under mentioned facts, compute the NPV of the
two projects for the each of the possible cash flows, using
Sensitivity Analysis.
Particulars
Project X
('000)
Project
Y ('000)
Initial Cash
Outlay (t0)
Rs 40 Rs 40
Cash flow
Estimates
(t-1-15)
Worst 6 0
Most
Likely
8 8
Best 10 16
Required Rate
of Return
0.1 0.1
Economic Life
(in years)
5 15
Level 6 Creating
7
M/S Zenith Enterprises is considering a project with the
following cash flows:
Year
Cost of Plant
(Rs.)
Running Cost
(Rs.)
Savings
(Rs.)
0 (7000)
1 2000 6000
2 2500 7000
The Cost of Capital of firm is 8%. Measure the sensitivity of
the project to changes in the levels of plant value, costs and
savings (considering each factor at a time) such that the net
present value of the project becomes zero. What factor is the
most sensitive to affect the acceptability of the project?
Level 1 Remembering
8
Mr. Selva is considering two mutually exclusive project ?X?
and ?Y?. You are required to advise him about the
acceptability of the projects from the following information.
The cut-off rate may be assumed to be 15%.
Project X Project Y
Cost of the Investment 1,00,000 1,00,000
Forecast cash inflows per
annum for 5 years
Optimistic 60000 55000
Most likely 35000 30000
Pessimistic 20000 20000
Level 2 Understanding
9
A company is considering two mutually exclusive projects,
both require an initial cash outlay of Rs. 10,000 each and have
a life of 5 years. The company?s required rate of return 10%
and pays tax at 50 %. The project will be depreciated on a
straight-line basis. The before tax cash flows expected to be
generated by the project are as follows.
Before tax cash flows:
Year Project A Project B
1 4,000 5,000
2 4,000 5,000
3 4,000 2,000
4 4,000 5,000
5 4,000 5,000
Calculate for each project: (i) PBP (ii) NPV (iii) PI. Which
project should be accepted and why?
Level 3 Applying
10
Determine the payback period from the following cash flows
Year CFAT
0 100000
1 20000
2 30000
3 40000
4 50000
5 60000
Level 4 Analysing
11
How the principles of capital rationing are considered as best
evaluation technique under such circumstances?
Level 1 Remembering
12 What are the circumstances NPV & IRR differ? Level 2 Understanding
13
How would you select the investment projects under one-
period capital constraints?
Level 4 Analysing
14
X ltd has five projects. Details are given below. Rank the
five projects based on NPV and IRR. The discount rate is
10%.
Project
Investment
Outlay (Rs.)
Expected
Annual Cash
Inflow (Rs.)
Project
life(years)
M
50,000 18,000 10
N 1,00,000 50,000 4
O 1,20,000 30,000 8
P 1,50,000 40,000 16
Q 2,00,000 30,000 25
Level 1 Remembering
PART - C
S.NO QUESTIONS
1
X ltd is considering the purchase of a new plant requiring a cash outlay of Rs.20,000. The plant is
expected to have a useful life of 2 years without any salvage value. The cash flows and their associated
probabilities for the two years are as follows: Presuming that 10% is the cost of capital you plot the above
data in the form of a decision tree and suggest whether the project should be taken up or not.
First Year Cash Flow Probability
I 8000 0.3
II 11000 0.4
III 15000 0.3
Second Year, if First year Cash Flow is 8000
Cash Flow Probability
I 4000 0.2
II 10000 0.6
III 15000 0.2
Second Year, if First year Cash Flow is 11000
Cash Flow Probability
I 13000 0.3
II 15000 0.4
III 16000 0.3
Second Year, if First year Cash Flow is 15000
Cash Flow Probability
I 16000 0.1
II 20000 0.8
III 24000 0.1
2
A firm has an investment proposal, requiring an outlay of Rs.40,000. The investment proposal is expected
to have 2 years economical life with no salvage value. In year I, there is a 0.4 probability that cash inflow
after tax will be Rs.25000 and 0.6 probabilities that cash inflow after tax will be Rs.30,000. The
probability assigned to cash inflow after tax for the year II are as follows: The firm uses a 10% discount
rate for this type of investment. Construct a decision tree for the proposed investment project.
Cash Inflow Year I Rs.25000 Rs.30000
Cash Inflow Year II
with probabilities
Rs.12000
Rs.16000
Rs.22000
0.2
0.3
0.5
Rs.20000
Rs.25000
Rs.30000
0.4
0.5
0.1
3
What is Profitability Index? Which is a superior ranking criterion, profitability index or NPV?
4
Do you think Capital rationing lead to sub-optimal investment decision? Explain
FirstRanker.com - FirstRanker's Choice
?
DEPARTMENT OF MANAGEMENT STUDIES
QUESTION BANK
III SEMESTER
BA5013 ? STRATEGIC INVESTMENT AND FINANCING DECISIONS
Regulation ? 2017
Academic Year 2019 - 2020
Prepared by
Mrs. A. UmaDevi ? Asst. Professor
Mr. K. Suresh ? Asst. Professor
? .
DEPARTMENT OFMANAGEMENT STUDIES
QUESTION BANK
SUBJECT : BA5013 ? STRATEGIC INVESTMENT AND FINANCING DECISIONS
SEM / YEAR : III Semester / II Year
UNIT ? I ? INVESTMENT DECISIONS
SYLLABUS: Project Investment Management Vs Project Management ? Introduction to profitable
projects ? evaluation of Investment opportunities ? Investment decisions under conditions of uncertainty
? Risk analysis in Investment decision ? Types of investments and disinvestments.
PART- A
S.NO QUESTIONS BT LEVEL COMPETENCE
1
What is Investment Management?
Level 1 Remembering
2
Compare Project Investment management and Project
Management.
Level 2 Understanding
3
Identify the features of Investment decisions.
Level 3 Applying
4
Classify the different ways of evaluating investment
opportunities.
Level 4 Analysing
5
Give the objectives of profitable project.
Level 5 Evaluating
6
Can you assess the importance of discounted cash flow method?
Level 6 Creating
7
What is uncertainty in financial investment?
Level 1 Remembering
8
Distinguish RAD and CE.
Level 2 Understanding
9
Identify the different types of Investment.
Level 3 Applying
10
Summarize the concept of Capital Budgeting.
Level 4 Analysing
11
Give five qualities required for successful investing.
Level 5 Evaluating
12
Interpret the objectives of Investment.
Level 6 Creating
13
Define Project Management.
Level 1 Remembering
14
Distinguish between systematic & unsystematic risk.
Level 2 Understanding
15
How is Disinvestment undertaken?
Level 3 Applying
16
Classify the types of Disinvestments.
Level 4 Analysing
17
What are the principal methods employed for ascertaining the
profitability of capital expenditure project?
Level 1 Remembering
18
Differentiate Investment and Disinvestment.
Level 2 Understanding
19
Explain the term ?Project Profitability? in investment
management.
Level 1 Remembering
20
How do you measure risk by means of standard deviation &
Coefficient of Variance?
Level 1 Remembering
PART- B
S.NO QUESTIONS BT LEVEL COMPETENCE
1
What key issues are examined while making a major
Investment decision?
Level 1 Remembering
2 Identify the different types of investments and its features. Level 2 Understanding
3 Explain the different kinds of project risks. Level 3 Applying
4
i) Discuss the steps involved in Simulation analysis. (5
marks)
Level 4 Analysing
ii) What are the pros and cons of simulation analysis? (8
marks)
5
Critically examine how you would assess the profitability of
a project.
Level 5 Evaluating
6.
Interpret Sensitivity analysis method of investment analysis
with an example.
Level 6 Creating
7
How will you analyze the risk before taking any investment
decision?
Level 1 Remembering
8 Discuss the disinvestment methods available for corporates. Level 2 Understanding
9 Describe the advantages of investments. Level 3 Applying
10 Explain the evaluation of Investment Opportunities. Level 4 Analysing
11
?Risk analysis is an essential feature of investment decision
making process?. What are the major risk factors and how
will you control them?
Level 1 Remembering
12
Define Capital budgeting. Explain briefly the various risk
management techniques in capital budgeting with
illustrations.
Level 2 Understanding
13
X company is considering two projects M&N, each of which
require an initial outlay of Rs.50 lakhs. The expected cash
inflows from these projects are:
Year Project M Project N
1 12 37
2 18 24
3 33 19
4 36 12
1. What is the PBP for each of the project?
2. If the two projects are mutually exclusive and the cost of
capital is 15%. Which project should the firm invest in?
3. If cost of capital is 14%, What is the modified IRR of
each project?
Level 4 Analysing
14
From the following information, ascertain which project
should be selected on the basis of standard deviation.
Project X Project Y
Cash
Inflow
Probability
Cash
Inflow
Probability
3200 0.2 2400 0.1
5500 0.3 7400 0.4
7400 0.3 8800 0.4
8900 0.2 5500 0.1
Level 1 Remembering
PART - C
S.NO QUESTIONS
1
Capital expenditure decisions are by far the most important decisions in the field of management. Illustrate
2
There are 3 securities X, Y, and Z. The returns are given as below; Select the securities based on risk and
return. Calculate average returns, variance and standard deviation.
Security X 30 20 22 33 15
Security Y -20 10 20 10 20
Security Z -20 -10 -5 10 30
3
Is there any difference between risk and uncertainty? Elucidate about capital budgeting decisions in an
organization.
4
How can Utility theory be incorporated in the capital budgeting decision to account for the risk preferences
of the decision maker?
UNIT ? II ? CRITICAL ANALYSIS OF APPRAISAL TECHNIQUES
SYLLABUS: Significance of Information and data bank in project selections ? Investment decisions
under capital constraints ? capital rationing, Portfolio ? Portfolio risk and diversified projects.
PART- A
S.NO QUESTIONS BT LEVEL COMPETENCE
1
Define Capital rationing.
Level 1 Remembering
2 Compare capital constraint on risk analysis. Level 2 Understanding
3
Identify the different steps in decision tree.
Level 3 Applying
4 Classify the different ways of evaluating project selection. Level 4 Analysing
5 Give the objectives of data bank in project selection. Level 5 Evaluating
6
Can you assess the importance of data bank in project
selection?
Level 6 Creating
7
What is meant by Capital constraint?
Level 1 Remembering
8
Draw a decision tree & illustrate.
Level 2 Understanding
9
Identify the steps in Simulation analysis.
Level 3 Applying
10 What is Capital constraint? Level 4 Analysing
11
Give a note on risky investments.
Level 5 Evaluating
12
Interpret the objectives of project selection.
Level 6 Creating
13 Define Capital rationing. Level 1 Remembering
14
Compare portfolio risk & diversification.
Level 2 Understanding
15
How is Portfolio diversification undertaken?
Level 3 Applying
16 Identify the features of diversification. Level 4 Analysing
17
What are the advantages & disadvantages of decision tree
approach?
Level 1 Remembering
18
Write down the need for portfolio diversification.
Level 2 Understanding
19
What is portfolio risk?
Level 1 Remembering
20 How do you measure risk by means of Sensitivity analysis? Level 1 Remembering
PART- B
S.NO QUESTIONS BT LEVEL COMPETENCE
1
Discuss about examination of the secondary information for
reliability and relevance for the consideration purpose.
Level 1 Remembering
2
Narrate the various techniques used to construct a good
portfolio.
Level 2 Understanding
3
Elucidate the various techniques available for incorporating
risk factor in capital investment proposals with practical
examples.
Level 3 Applying
4 Explain the programming approach to capital rationing. Level 4 Analysing
5
From the following information state which project is
preferred? Two alternative projects are available (project X
and project Y) each costing Rs.10,00,000. The company has a
target return on capital (riskless discount rate) of 10%. The
management considers risk premium rate at 2 percent and 8
percent respectively, project X and project Y.
Year 1 2 3 4
Project X 400000 350000 250000 200000
Project Y 500000 400000 300000 200000
Level 5 Evaluating
6.
From the under mentioned facts, compute the NPV of the
two projects for the each of the possible cash flows, using
Sensitivity Analysis.
Particulars
Project X
('000)
Project
Y ('000)
Initial Cash
Outlay (t0)
Rs 40 Rs 40
Cash flow
Estimates
(t-1-15)
Worst 6 0
Most
Likely
8 8
Best 10 16
Required Rate
of Return
0.1 0.1
Economic Life
(in years)
5 15
Level 6 Creating
7
M/S Zenith Enterprises is considering a project with the
following cash flows:
Year
Cost of Plant
(Rs.)
Running Cost
(Rs.)
Savings
(Rs.)
0 (7000)
1 2000 6000
2 2500 7000
The Cost of Capital of firm is 8%. Measure the sensitivity of
the project to changes in the levels of plant value, costs and
savings (considering each factor at a time) such that the net
present value of the project becomes zero. What factor is the
most sensitive to affect the acceptability of the project?
Level 1 Remembering
8
Mr. Selva is considering two mutually exclusive project ?X?
and ?Y?. You are required to advise him about the
acceptability of the projects from the following information.
The cut-off rate may be assumed to be 15%.
Project X Project Y
Cost of the Investment 1,00,000 1,00,000
Forecast cash inflows per
annum for 5 years
Optimistic 60000 55000
Most likely 35000 30000
Pessimistic 20000 20000
Level 2 Understanding
9
A company is considering two mutually exclusive projects,
both require an initial cash outlay of Rs. 10,000 each and have
a life of 5 years. The company?s required rate of return 10%
and pays tax at 50 %. The project will be depreciated on a
straight-line basis. The before tax cash flows expected to be
generated by the project are as follows.
Before tax cash flows:
Year Project A Project B
1 4,000 5,000
2 4,000 5,000
3 4,000 2,000
4 4,000 5,000
5 4,000 5,000
Calculate for each project: (i) PBP (ii) NPV (iii) PI. Which
project should be accepted and why?
Level 3 Applying
10
Determine the payback period from the following cash flows
Year CFAT
0 100000
1 20000
2 30000
3 40000
4 50000
5 60000
Level 4 Analysing
11
How the principles of capital rationing are considered as best
evaluation technique under such circumstances?
Level 1 Remembering
12 What are the circumstances NPV & IRR differ? Level 2 Understanding
13
How would you select the investment projects under one-
period capital constraints?
Level 4 Analysing
14
X ltd has five projects. Details are given below. Rank the
five projects based on NPV and IRR. The discount rate is
10%.
Project
Investment
Outlay (Rs.)
Expected
Annual Cash
Inflow (Rs.)
Project
life(years)
M
50,000 18,000 10
N 1,00,000 50,000 4
O 1,20,000 30,000 8
P 1,50,000 40,000 16
Q 2,00,000 30,000 25
Level 1 Remembering
PART - C
S.NO QUESTIONS
1
X ltd is considering the purchase of a new plant requiring a cash outlay of Rs.20,000. The plant is
expected to have a useful life of 2 years without any salvage value. The cash flows and their associated
probabilities for the two years are as follows: Presuming that 10% is the cost of capital you plot the above
data in the form of a decision tree and suggest whether the project should be taken up or not.
First Year Cash Flow Probability
I 8000 0.3
II 11000 0.4
III 15000 0.3
Second Year, if First year Cash Flow is 8000
Cash Flow Probability
I 4000 0.2
II 10000 0.6
III 15000 0.2
Second Year, if First year Cash Flow is 11000
Cash Flow Probability
I 13000 0.3
II 15000 0.4
III 16000 0.3
Second Year, if First year Cash Flow is 15000
Cash Flow Probability
I 16000 0.1
II 20000 0.8
III 24000 0.1
2
A firm has an investment proposal, requiring an outlay of Rs.40,000. The investment proposal is expected
to have 2 years economical life with no salvage value. In year I, there is a 0.4 probability that cash inflow
after tax will be Rs.25000 and 0.6 probabilities that cash inflow after tax will be Rs.30,000. The
probability assigned to cash inflow after tax for the year II are as follows: The firm uses a 10% discount
rate for this type of investment. Construct a decision tree for the proposed investment project.
Cash Inflow Year I Rs.25000 Rs.30000
Cash Inflow Year II
with probabilities
Rs.12000
Rs.16000
Rs.22000
0.2
0.3
0.5
Rs.20000
Rs.25000
Rs.30000
0.4
0.5
0.1
3
What is Profitability Index? Which is a superior ranking criterion, profitability index or NPV?
4
Do you think Capital rationing lead to sub-optimal investment decision? Explain
UNIT ? III ? STRATEGIC ANALYSIS OF SELECTED INVESTMENT
SYLLABUS: Lease financing ? Lease Vs Buy decision ? Hire Purchase and installment decision ? Hire
Purchase Vs Lease Decision ? Mergers and acquisition ? Cash Vs Equity for mergers.
PART- A
S.NO QUESTIONS BT LEVEL COMPETENCE
1 Define Leasing. Level 1 Remembering
2
Compare Lease and Buy decision.
Level 2 Understanding
3
Identify the features of Lease financing.
Level 3 Applying
4 Classify the different types of Lease. Level 4 Analysing
5
Give the objectives of Lease financing.
Level 5 Evaluating
6 Can you assess the importance of buying decision? Level 6 Creating
7
Define Hire purchase?
Level 1 Remembering
8 Distinguish Hire purchase and Installment decision. Level 2 Understanding
9
Identify the different types of Hire purchase agreements.
Level 3 Applying
10 Summarize the concept of Installment decision. Level 4 Analysing
11
Give the characteristic features of hire purchase.
Level 5 Evaluating
12
Can you interpret about the parties involved in hire
purchase?
Level 6 Creating
13 Define Merger. Level 1 Remembering
14
Distinguish between Merger & Acquisition.
Level 2 Understanding
15
Identify the features of Merger.
Level 3 Applying
16
Classify the types of Merger.
Level 4 Analysing
17
What is tripartite lease?
Level 1 Remembering
18 Compare Cash and Stock payment Merger. Level 2 Understanding
19 What is meant by reverse Merger & Acquisition? Level 1 Remembering
20
What are the objectives & benefits of Merger &
Acquisition?
Level 1 Remembering
FirstRanker.com - FirstRanker's Choice
?
DEPARTMENT OF MANAGEMENT STUDIES
QUESTION BANK
III SEMESTER
BA5013 ? STRATEGIC INVESTMENT AND FINANCING DECISIONS
Regulation ? 2017
Academic Year 2019 - 2020
Prepared by
Mrs. A. UmaDevi ? Asst. Professor
Mr. K. Suresh ? Asst. Professor
? .
DEPARTMENT OFMANAGEMENT STUDIES
QUESTION BANK
SUBJECT : BA5013 ? STRATEGIC INVESTMENT AND FINANCING DECISIONS
SEM / YEAR : III Semester / II Year
UNIT ? I ? INVESTMENT DECISIONS
SYLLABUS: Project Investment Management Vs Project Management ? Introduction to profitable
projects ? evaluation of Investment opportunities ? Investment decisions under conditions of uncertainty
? Risk analysis in Investment decision ? Types of investments and disinvestments.
PART- A
S.NO QUESTIONS BT LEVEL COMPETENCE
1
What is Investment Management?
Level 1 Remembering
2
Compare Project Investment management and Project
Management.
Level 2 Understanding
3
Identify the features of Investment decisions.
Level 3 Applying
4
Classify the different ways of evaluating investment
opportunities.
Level 4 Analysing
5
Give the objectives of profitable project.
Level 5 Evaluating
6
Can you assess the importance of discounted cash flow method?
Level 6 Creating
7
What is uncertainty in financial investment?
Level 1 Remembering
8
Distinguish RAD and CE.
Level 2 Understanding
9
Identify the different types of Investment.
Level 3 Applying
10
Summarize the concept of Capital Budgeting.
Level 4 Analysing
11
Give five qualities required for successful investing.
Level 5 Evaluating
12
Interpret the objectives of Investment.
Level 6 Creating
13
Define Project Management.
Level 1 Remembering
14
Distinguish between systematic & unsystematic risk.
Level 2 Understanding
15
How is Disinvestment undertaken?
Level 3 Applying
16
Classify the types of Disinvestments.
Level 4 Analysing
17
What are the principal methods employed for ascertaining the
profitability of capital expenditure project?
Level 1 Remembering
18
Differentiate Investment and Disinvestment.
Level 2 Understanding
19
Explain the term ?Project Profitability? in investment
management.
Level 1 Remembering
20
How do you measure risk by means of standard deviation &
Coefficient of Variance?
Level 1 Remembering
PART- B
S.NO QUESTIONS BT LEVEL COMPETENCE
1
What key issues are examined while making a major
Investment decision?
Level 1 Remembering
2 Identify the different types of investments and its features. Level 2 Understanding
3 Explain the different kinds of project risks. Level 3 Applying
4
i) Discuss the steps involved in Simulation analysis. (5
marks)
Level 4 Analysing
ii) What are the pros and cons of simulation analysis? (8
marks)
5
Critically examine how you would assess the profitability of
a project.
Level 5 Evaluating
6.
Interpret Sensitivity analysis method of investment analysis
with an example.
Level 6 Creating
7
How will you analyze the risk before taking any investment
decision?
Level 1 Remembering
8 Discuss the disinvestment methods available for corporates. Level 2 Understanding
9 Describe the advantages of investments. Level 3 Applying
10 Explain the evaluation of Investment Opportunities. Level 4 Analysing
11
?Risk analysis is an essential feature of investment decision
making process?. What are the major risk factors and how
will you control them?
Level 1 Remembering
12
Define Capital budgeting. Explain briefly the various risk
management techniques in capital budgeting with
illustrations.
Level 2 Understanding
13
X company is considering two projects M&N, each of which
require an initial outlay of Rs.50 lakhs. The expected cash
inflows from these projects are:
Year Project M Project N
1 12 37
2 18 24
3 33 19
4 36 12
1. What is the PBP for each of the project?
2. If the two projects are mutually exclusive and the cost of
capital is 15%. Which project should the firm invest in?
3. If cost of capital is 14%, What is the modified IRR of
each project?
Level 4 Analysing
14
From the following information, ascertain which project
should be selected on the basis of standard deviation.
Project X Project Y
Cash
Inflow
Probability
Cash
Inflow
Probability
3200 0.2 2400 0.1
5500 0.3 7400 0.4
7400 0.3 8800 0.4
8900 0.2 5500 0.1
Level 1 Remembering
PART - C
S.NO QUESTIONS
1
Capital expenditure decisions are by far the most important decisions in the field of management. Illustrate
2
There are 3 securities X, Y, and Z. The returns are given as below; Select the securities based on risk and
return. Calculate average returns, variance and standard deviation.
Security X 30 20 22 33 15
Security Y -20 10 20 10 20
Security Z -20 -10 -5 10 30
3
Is there any difference between risk and uncertainty? Elucidate about capital budgeting decisions in an
organization.
4
How can Utility theory be incorporated in the capital budgeting decision to account for the risk preferences
of the decision maker?
UNIT ? II ? CRITICAL ANALYSIS OF APPRAISAL TECHNIQUES
SYLLABUS: Significance of Information and data bank in project selections ? Investment decisions
under capital constraints ? capital rationing, Portfolio ? Portfolio risk and diversified projects.
PART- A
S.NO QUESTIONS BT LEVEL COMPETENCE
1
Define Capital rationing.
Level 1 Remembering
2 Compare capital constraint on risk analysis. Level 2 Understanding
3
Identify the different steps in decision tree.
Level 3 Applying
4 Classify the different ways of evaluating project selection. Level 4 Analysing
5 Give the objectives of data bank in project selection. Level 5 Evaluating
6
Can you assess the importance of data bank in project
selection?
Level 6 Creating
7
What is meant by Capital constraint?
Level 1 Remembering
8
Draw a decision tree & illustrate.
Level 2 Understanding
9
Identify the steps in Simulation analysis.
Level 3 Applying
10 What is Capital constraint? Level 4 Analysing
11
Give a note on risky investments.
Level 5 Evaluating
12
Interpret the objectives of project selection.
Level 6 Creating
13 Define Capital rationing. Level 1 Remembering
14
Compare portfolio risk & diversification.
Level 2 Understanding
15
How is Portfolio diversification undertaken?
Level 3 Applying
16 Identify the features of diversification. Level 4 Analysing
17
What are the advantages & disadvantages of decision tree
approach?
Level 1 Remembering
18
Write down the need for portfolio diversification.
Level 2 Understanding
19
What is portfolio risk?
Level 1 Remembering
20 How do you measure risk by means of Sensitivity analysis? Level 1 Remembering
PART- B
S.NO QUESTIONS BT LEVEL COMPETENCE
1
Discuss about examination of the secondary information for
reliability and relevance for the consideration purpose.
Level 1 Remembering
2
Narrate the various techniques used to construct a good
portfolio.
Level 2 Understanding
3
Elucidate the various techniques available for incorporating
risk factor in capital investment proposals with practical
examples.
Level 3 Applying
4 Explain the programming approach to capital rationing. Level 4 Analysing
5
From the following information state which project is
preferred? Two alternative projects are available (project X
and project Y) each costing Rs.10,00,000. The company has a
target return on capital (riskless discount rate) of 10%. The
management considers risk premium rate at 2 percent and 8
percent respectively, project X and project Y.
Year 1 2 3 4
Project X 400000 350000 250000 200000
Project Y 500000 400000 300000 200000
Level 5 Evaluating
6.
From the under mentioned facts, compute the NPV of the
two projects for the each of the possible cash flows, using
Sensitivity Analysis.
Particulars
Project X
('000)
Project
Y ('000)
Initial Cash
Outlay (t0)
Rs 40 Rs 40
Cash flow
Estimates
(t-1-15)
Worst 6 0
Most
Likely
8 8
Best 10 16
Required Rate
of Return
0.1 0.1
Economic Life
(in years)
5 15
Level 6 Creating
7
M/S Zenith Enterprises is considering a project with the
following cash flows:
Year
Cost of Plant
(Rs.)
Running Cost
(Rs.)
Savings
(Rs.)
0 (7000)
1 2000 6000
2 2500 7000
The Cost of Capital of firm is 8%. Measure the sensitivity of
the project to changes in the levels of plant value, costs and
savings (considering each factor at a time) such that the net
present value of the project becomes zero. What factor is the
most sensitive to affect the acceptability of the project?
Level 1 Remembering
8
Mr. Selva is considering two mutually exclusive project ?X?
and ?Y?. You are required to advise him about the
acceptability of the projects from the following information.
The cut-off rate may be assumed to be 15%.
Project X Project Y
Cost of the Investment 1,00,000 1,00,000
Forecast cash inflows per
annum for 5 years
Optimistic 60000 55000
Most likely 35000 30000
Pessimistic 20000 20000
Level 2 Understanding
9
A company is considering two mutually exclusive projects,
both require an initial cash outlay of Rs. 10,000 each and have
a life of 5 years. The company?s required rate of return 10%
and pays tax at 50 %. The project will be depreciated on a
straight-line basis. The before tax cash flows expected to be
generated by the project are as follows.
Before tax cash flows:
Year Project A Project B
1 4,000 5,000
2 4,000 5,000
3 4,000 2,000
4 4,000 5,000
5 4,000 5,000
Calculate for each project: (i) PBP (ii) NPV (iii) PI. Which
project should be accepted and why?
Level 3 Applying
10
Determine the payback period from the following cash flows
Year CFAT
0 100000
1 20000
2 30000
3 40000
4 50000
5 60000
Level 4 Analysing
11
How the principles of capital rationing are considered as best
evaluation technique under such circumstances?
Level 1 Remembering
12 What are the circumstances NPV & IRR differ? Level 2 Understanding
13
How would you select the investment projects under one-
period capital constraints?
Level 4 Analysing
14
X ltd has five projects. Details are given below. Rank the
five projects based on NPV and IRR. The discount rate is
10%.
Project
Investment
Outlay (Rs.)
Expected
Annual Cash
Inflow (Rs.)
Project
life(years)
M
50,000 18,000 10
N 1,00,000 50,000 4
O 1,20,000 30,000 8
P 1,50,000 40,000 16
Q 2,00,000 30,000 25
Level 1 Remembering
PART - C
S.NO QUESTIONS
1
X ltd is considering the purchase of a new plant requiring a cash outlay of Rs.20,000. The plant is
expected to have a useful life of 2 years without any salvage value. The cash flows and their associated
probabilities for the two years are as follows: Presuming that 10% is the cost of capital you plot the above
data in the form of a decision tree and suggest whether the project should be taken up or not.
First Year Cash Flow Probability
I 8000 0.3
II 11000 0.4
III 15000 0.3
Second Year, if First year Cash Flow is 8000
Cash Flow Probability
I 4000 0.2
II 10000 0.6
III 15000 0.2
Second Year, if First year Cash Flow is 11000
Cash Flow Probability
I 13000 0.3
II 15000 0.4
III 16000 0.3
Second Year, if First year Cash Flow is 15000
Cash Flow Probability
I 16000 0.1
II 20000 0.8
III 24000 0.1
2
A firm has an investment proposal, requiring an outlay of Rs.40,000. The investment proposal is expected
to have 2 years economical life with no salvage value. In year I, there is a 0.4 probability that cash inflow
after tax will be Rs.25000 and 0.6 probabilities that cash inflow after tax will be Rs.30,000. The
probability assigned to cash inflow after tax for the year II are as follows: The firm uses a 10% discount
rate for this type of investment. Construct a decision tree for the proposed investment project.
Cash Inflow Year I Rs.25000 Rs.30000
Cash Inflow Year II
with probabilities
Rs.12000
Rs.16000
Rs.22000
0.2
0.3
0.5
Rs.20000
Rs.25000
Rs.30000
0.4
0.5
0.1
3
What is Profitability Index? Which is a superior ranking criterion, profitability index or NPV?
4
Do you think Capital rationing lead to sub-optimal investment decision? Explain
UNIT ? III ? STRATEGIC ANALYSIS OF SELECTED INVESTMENT
SYLLABUS: Lease financing ? Lease Vs Buy decision ? Hire Purchase and installment decision ? Hire
Purchase Vs Lease Decision ? Mergers and acquisition ? Cash Vs Equity for mergers.
PART- A
S.NO QUESTIONS BT LEVEL COMPETENCE
1 Define Leasing. Level 1 Remembering
2
Compare Lease and Buy decision.
Level 2 Understanding
3
Identify the features of Lease financing.
Level 3 Applying
4 Classify the different types of Lease. Level 4 Analysing
5
Give the objectives of Lease financing.
Level 5 Evaluating
6 Can you assess the importance of buying decision? Level 6 Creating
7
Define Hire purchase?
Level 1 Remembering
8 Distinguish Hire purchase and Installment decision. Level 2 Understanding
9
Identify the different types of Hire purchase agreements.
Level 3 Applying
10 Summarize the concept of Installment decision. Level 4 Analysing
11
Give the characteristic features of hire purchase.
Level 5 Evaluating
12
Can you interpret about the parties involved in hire
purchase?
Level 6 Creating
13 Define Merger. Level 1 Remembering
14
Distinguish between Merger & Acquisition.
Level 2 Understanding
15
Identify the features of Merger.
Level 3 Applying
16
Classify the types of Merger.
Level 4 Analysing
17
What is tripartite lease?
Level 1 Remembering
18 Compare Cash and Stock payment Merger. Level 2 Understanding
19 What is meant by reverse Merger & Acquisition? Level 1 Remembering
20
What are the objectives & benefits of Merger &
Acquisition?
Level 1 Remembering
PART- B
S.NO QUESTIONS BT LEVEL COMPETENCE
1
What are the salient features of a leasing arrangement? How
would you choose between leasing and buying?
Level 1 Remembering
2 Explain the different types of Leasing and its features. Level 2 Understanding
3
Identify the steps considered while making investment
decision of leasing or buying.
Level 3 Applying
4 Critically analyse the various types of investment decisions. Level 4 Analysing
5
Discuss the essential elements advantages for lessor and
lessee in leasing.
Level 5 Evaluating
6.
(i)Interpret the tax considerations on Hire purchasing
decision.
(ii)What are the pros and cons of Hire purchasing?
Level 6 Creating
7
(i)What are the methods of Hire Purchase system?
(ii)What do you understand by Installment Purchase
system? Elaborate its features.
Level 1 Remembering
8 Distinguish between leasing and Hire purchasing. Level 2 Understanding
9
Describe the of Leasing.
Level 3 Applying
10
Evaluate the guidelines followed by banks in Hire purchase
.
Level 4 Analysing
11 Highlight the real motives of mergers and acquisitions. Level 1 Remembering
12
Elucidate the different types of Merger. Also explain
important reasons for mergers.
Level 2 Understanding
13
(i) Evaluate the payment methods in M&A.
(ii)What are the benefits of stock payment merger?
Level 4 Analysing
14
Describe the various steps involved in a Merger and the
strategies involved in handling it.
Level 1 Remembering
FirstRanker.com - FirstRanker's Choice
?
DEPARTMENT OF MANAGEMENT STUDIES
QUESTION BANK
III SEMESTER
BA5013 ? STRATEGIC INVESTMENT AND FINANCING DECISIONS
Regulation ? 2017
Academic Year 2019 - 2020
Prepared by
Mrs. A. UmaDevi ? Asst. Professor
Mr. K. Suresh ? Asst. Professor
? .
DEPARTMENT OFMANAGEMENT STUDIES
QUESTION BANK
SUBJECT : BA5013 ? STRATEGIC INVESTMENT AND FINANCING DECISIONS
SEM / YEAR : III Semester / II Year
UNIT ? I ? INVESTMENT DECISIONS
SYLLABUS: Project Investment Management Vs Project Management ? Introduction to profitable
projects ? evaluation of Investment opportunities ? Investment decisions under conditions of uncertainty
? Risk analysis in Investment decision ? Types of investments and disinvestments.
PART- A
S.NO QUESTIONS BT LEVEL COMPETENCE
1
What is Investment Management?
Level 1 Remembering
2
Compare Project Investment management and Project
Management.
Level 2 Understanding
3
Identify the features of Investment decisions.
Level 3 Applying
4
Classify the different ways of evaluating investment
opportunities.
Level 4 Analysing
5
Give the objectives of profitable project.
Level 5 Evaluating
6
Can you assess the importance of discounted cash flow method?
Level 6 Creating
7
What is uncertainty in financial investment?
Level 1 Remembering
8
Distinguish RAD and CE.
Level 2 Understanding
9
Identify the different types of Investment.
Level 3 Applying
10
Summarize the concept of Capital Budgeting.
Level 4 Analysing
11
Give five qualities required for successful investing.
Level 5 Evaluating
12
Interpret the objectives of Investment.
Level 6 Creating
13
Define Project Management.
Level 1 Remembering
14
Distinguish between systematic & unsystematic risk.
Level 2 Understanding
15
How is Disinvestment undertaken?
Level 3 Applying
16
Classify the types of Disinvestments.
Level 4 Analysing
17
What are the principal methods employed for ascertaining the
profitability of capital expenditure project?
Level 1 Remembering
18
Differentiate Investment and Disinvestment.
Level 2 Understanding
19
Explain the term ?Project Profitability? in investment
management.
Level 1 Remembering
20
How do you measure risk by means of standard deviation &
Coefficient of Variance?
Level 1 Remembering
PART- B
S.NO QUESTIONS BT LEVEL COMPETENCE
1
What key issues are examined while making a major
Investment decision?
Level 1 Remembering
2 Identify the different types of investments and its features. Level 2 Understanding
3 Explain the different kinds of project risks. Level 3 Applying
4
i) Discuss the steps involved in Simulation analysis. (5
marks)
Level 4 Analysing
ii) What are the pros and cons of simulation analysis? (8
marks)
5
Critically examine how you would assess the profitability of
a project.
Level 5 Evaluating
6.
Interpret Sensitivity analysis method of investment analysis
with an example.
Level 6 Creating
7
How will you analyze the risk before taking any investment
decision?
Level 1 Remembering
8 Discuss the disinvestment methods available for corporates. Level 2 Understanding
9 Describe the advantages of investments. Level 3 Applying
10 Explain the evaluation of Investment Opportunities. Level 4 Analysing
11
?Risk analysis is an essential feature of investment decision
making process?. What are the major risk factors and how
will you control them?
Level 1 Remembering
12
Define Capital budgeting. Explain briefly the various risk
management techniques in capital budgeting with
illustrations.
Level 2 Understanding
13
X company is considering two projects M&N, each of which
require an initial outlay of Rs.50 lakhs. The expected cash
inflows from these projects are:
Year Project M Project N
1 12 37
2 18 24
3 33 19
4 36 12
1. What is the PBP for each of the project?
2. If the two projects are mutually exclusive and the cost of
capital is 15%. Which project should the firm invest in?
3. If cost of capital is 14%, What is the modified IRR of
each project?
Level 4 Analysing
14
From the following information, ascertain which project
should be selected on the basis of standard deviation.
Project X Project Y
Cash
Inflow
Probability
Cash
Inflow
Probability
3200 0.2 2400 0.1
5500 0.3 7400 0.4
7400 0.3 8800 0.4
8900 0.2 5500 0.1
Level 1 Remembering
PART - C
S.NO QUESTIONS
1
Capital expenditure decisions are by far the most important decisions in the field of management. Illustrate
2
There are 3 securities X, Y, and Z. The returns are given as below; Select the securities based on risk and
return. Calculate average returns, variance and standard deviation.
Security X 30 20 22 33 15
Security Y -20 10 20 10 20
Security Z -20 -10 -5 10 30
3
Is there any difference between risk and uncertainty? Elucidate about capital budgeting decisions in an
organization.
4
How can Utility theory be incorporated in the capital budgeting decision to account for the risk preferences
of the decision maker?
UNIT ? II ? CRITICAL ANALYSIS OF APPRAISAL TECHNIQUES
SYLLABUS: Significance of Information and data bank in project selections ? Investment decisions
under capital constraints ? capital rationing, Portfolio ? Portfolio risk and diversified projects.
PART- A
S.NO QUESTIONS BT LEVEL COMPETENCE
1
Define Capital rationing.
Level 1 Remembering
2 Compare capital constraint on risk analysis. Level 2 Understanding
3
Identify the different steps in decision tree.
Level 3 Applying
4 Classify the different ways of evaluating project selection. Level 4 Analysing
5 Give the objectives of data bank in project selection. Level 5 Evaluating
6
Can you assess the importance of data bank in project
selection?
Level 6 Creating
7
What is meant by Capital constraint?
Level 1 Remembering
8
Draw a decision tree & illustrate.
Level 2 Understanding
9
Identify the steps in Simulation analysis.
Level 3 Applying
10 What is Capital constraint? Level 4 Analysing
11
Give a note on risky investments.
Level 5 Evaluating
12
Interpret the objectives of project selection.
Level 6 Creating
13 Define Capital rationing. Level 1 Remembering
14
Compare portfolio risk & diversification.
Level 2 Understanding
15
How is Portfolio diversification undertaken?
Level 3 Applying
16 Identify the features of diversification. Level 4 Analysing
17
What are the advantages & disadvantages of decision tree
approach?
Level 1 Remembering
18
Write down the need for portfolio diversification.
Level 2 Understanding
19
What is portfolio risk?
Level 1 Remembering
20 How do you measure risk by means of Sensitivity analysis? Level 1 Remembering
PART- B
S.NO QUESTIONS BT LEVEL COMPETENCE
1
Discuss about examination of the secondary information for
reliability and relevance for the consideration purpose.
Level 1 Remembering
2
Narrate the various techniques used to construct a good
portfolio.
Level 2 Understanding
3
Elucidate the various techniques available for incorporating
risk factor in capital investment proposals with practical
examples.
Level 3 Applying
4 Explain the programming approach to capital rationing. Level 4 Analysing
5
From the following information state which project is
preferred? Two alternative projects are available (project X
and project Y) each costing Rs.10,00,000. The company has a
target return on capital (riskless discount rate) of 10%. The
management considers risk premium rate at 2 percent and 8
percent respectively, project X and project Y.
Year 1 2 3 4
Project X 400000 350000 250000 200000
Project Y 500000 400000 300000 200000
Level 5 Evaluating
6.
From the under mentioned facts, compute the NPV of the
two projects for the each of the possible cash flows, using
Sensitivity Analysis.
Particulars
Project X
('000)
Project
Y ('000)
Initial Cash
Outlay (t0)
Rs 40 Rs 40
Cash flow
Estimates
(t-1-15)
Worst 6 0
Most
Likely
8 8
Best 10 16
Required Rate
of Return
0.1 0.1
Economic Life
(in years)
5 15
Level 6 Creating
7
M/S Zenith Enterprises is considering a project with the
following cash flows:
Year
Cost of Plant
(Rs.)
Running Cost
(Rs.)
Savings
(Rs.)
0 (7000)
1 2000 6000
2 2500 7000
The Cost of Capital of firm is 8%. Measure the sensitivity of
the project to changes in the levels of plant value, costs and
savings (considering each factor at a time) such that the net
present value of the project becomes zero. What factor is the
most sensitive to affect the acceptability of the project?
Level 1 Remembering
8
Mr. Selva is considering two mutually exclusive project ?X?
and ?Y?. You are required to advise him about the
acceptability of the projects from the following information.
The cut-off rate may be assumed to be 15%.
Project X Project Y
Cost of the Investment 1,00,000 1,00,000
Forecast cash inflows per
annum for 5 years
Optimistic 60000 55000
Most likely 35000 30000
Pessimistic 20000 20000
Level 2 Understanding
9
A company is considering two mutually exclusive projects,
both require an initial cash outlay of Rs. 10,000 each and have
a life of 5 years. The company?s required rate of return 10%
and pays tax at 50 %. The project will be depreciated on a
straight-line basis. The before tax cash flows expected to be
generated by the project are as follows.
Before tax cash flows:
Year Project A Project B
1 4,000 5,000
2 4,000 5,000
3 4,000 2,000
4 4,000 5,000
5 4,000 5,000
Calculate for each project: (i) PBP (ii) NPV (iii) PI. Which
project should be accepted and why?
Level 3 Applying
10
Determine the payback period from the following cash flows
Year CFAT
0 100000
1 20000
2 30000
3 40000
4 50000
5 60000
Level 4 Analysing
11
How the principles of capital rationing are considered as best
evaluation technique under such circumstances?
Level 1 Remembering
12 What are the circumstances NPV & IRR differ? Level 2 Understanding
13
How would you select the investment projects under one-
period capital constraints?
Level 4 Analysing
14
X ltd has five projects. Details are given below. Rank the
five projects based on NPV and IRR. The discount rate is
10%.
Project
Investment
Outlay (Rs.)
Expected
Annual Cash
Inflow (Rs.)
Project
life(years)
M
50,000 18,000 10
N 1,00,000 50,000 4
O 1,20,000 30,000 8
P 1,50,000 40,000 16
Q 2,00,000 30,000 25
Level 1 Remembering
PART - C
S.NO QUESTIONS
1
X ltd is considering the purchase of a new plant requiring a cash outlay of Rs.20,000. The plant is
expected to have a useful life of 2 years without any salvage value. The cash flows and their associated
probabilities for the two years are as follows: Presuming that 10% is the cost of capital you plot the above
data in the form of a decision tree and suggest whether the project should be taken up or not.
First Year Cash Flow Probability
I 8000 0.3
II 11000 0.4
III 15000 0.3
Second Year, if First year Cash Flow is 8000
Cash Flow Probability
I 4000 0.2
II 10000 0.6
III 15000 0.2
Second Year, if First year Cash Flow is 11000
Cash Flow Probability
I 13000 0.3
II 15000 0.4
III 16000 0.3
Second Year, if First year Cash Flow is 15000
Cash Flow Probability
I 16000 0.1
II 20000 0.8
III 24000 0.1
2
A firm has an investment proposal, requiring an outlay of Rs.40,000. The investment proposal is expected
to have 2 years economical life with no salvage value. In year I, there is a 0.4 probability that cash inflow
after tax will be Rs.25000 and 0.6 probabilities that cash inflow after tax will be Rs.30,000. The
probability assigned to cash inflow after tax for the year II are as follows: The firm uses a 10% discount
rate for this type of investment. Construct a decision tree for the proposed investment project.
Cash Inflow Year I Rs.25000 Rs.30000
Cash Inflow Year II
with probabilities
Rs.12000
Rs.16000
Rs.22000
0.2
0.3
0.5
Rs.20000
Rs.25000
Rs.30000
0.4
0.5
0.1
3
What is Profitability Index? Which is a superior ranking criterion, profitability index or NPV?
4
Do you think Capital rationing lead to sub-optimal investment decision? Explain
UNIT ? III ? STRATEGIC ANALYSIS OF SELECTED INVESTMENT
SYLLABUS: Lease financing ? Lease Vs Buy decision ? Hire Purchase and installment decision ? Hire
Purchase Vs Lease Decision ? Mergers and acquisition ? Cash Vs Equity for mergers.
PART- A
S.NO QUESTIONS BT LEVEL COMPETENCE
1 Define Leasing. Level 1 Remembering
2
Compare Lease and Buy decision.
Level 2 Understanding
3
Identify the features of Lease financing.
Level 3 Applying
4 Classify the different types of Lease. Level 4 Analysing
5
Give the objectives of Lease financing.
Level 5 Evaluating
6 Can you assess the importance of buying decision? Level 6 Creating
7
Define Hire purchase?
Level 1 Remembering
8 Distinguish Hire purchase and Installment decision. Level 2 Understanding
9
Identify the different types of Hire purchase agreements.
Level 3 Applying
10 Summarize the concept of Installment decision. Level 4 Analysing
11
Give the characteristic features of hire purchase.
Level 5 Evaluating
12
Can you interpret about the parties involved in hire
purchase?
Level 6 Creating
13 Define Merger. Level 1 Remembering
14
Distinguish between Merger & Acquisition.
Level 2 Understanding
15
Identify the features of Merger.
Level 3 Applying
16
Classify the types of Merger.
Level 4 Analysing
17
What is tripartite lease?
Level 1 Remembering
18 Compare Cash and Stock payment Merger. Level 2 Understanding
19 What is meant by reverse Merger & Acquisition? Level 1 Remembering
20
What are the objectives & benefits of Merger &
Acquisition?
Level 1 Remembering
PART- B
S.NO QUESTIONS BT LEVEL COMPETENCE
1
What are the salient features of a leasing arrangement? How
would you choose between leasing and buying?
Level 1 Remembering
2 Explain the different types of Leasing and its features. Level 2 Understanding
3
Identify the steps considered while making investment
decision of leasing or buying.
Level 3 Applying
4 Critically analyse the various types of investment decisions. Level 4 Analysing
5
Discuss the essential elements advantages for lessor and
lessee in leasing.
Level 5 Evaluating
6.
(i)Interpret the tax considerations on Hire purchasing
decision.
(ii)What are the pros and cons of Hire purchasing?
Level 6 Creating
7
(i)What are the methods of Hire Purchase system?
(ii)What do you understand by Installment Purchase
system? Elaborate its features.
Level 1 Remembering
8 Distinguish between leasing and Hire purchasing. Level 2 Understanding
9
Describe the of Leasing.
Level 3 Applying
10
Evaluate the guidelines followed by banks in Hire purchase
.
Level 4 Analysing
11 Highlight the real motives of mergers and acquisitions. Level 1 Remembering
12
Elucidate the different types of Merger. Also explain
important reasons for mergers.
Level 2 Understanding
13
(i) Evaluate the payment methods in M&A.
(ii)What are the benefits of stock payment merger?
Level 4 Analysing
14
Describe the various steps involved in a Merger and the
strategies involved in handling it.
Level 1 Remembering
PART - C
S.NO QUESTIONS
1
You work for a nuclear research laboratory that is contemplating leasing a diagnostic scanner (leasing is a
very common practice with expensive, high-tech equipment). The scanner costs Rs.10,00,000 and it
qualifies for a 30 percent CCA rate. Because of radiation contamination, it is valueless in four years. You
can lease it for Rs.3,00,000 per year for four years. Assume that the tax rate is 40 percent. You can
borrow at 8 percent pretax. Should you lease or buy?
2
Sunshine limited has an equity capital 6000 shares of Rs 100 each. The company plans to raise Rs400000
for expansion and modernization. The following alternatives are under consideration.
a) Issue of common stock
b) Issue of common stock for Rs 200000 and 10% debt for Rs 200000.
c) Issue of 10 % debt.
d) Issue of 10% preference shares of Rs 200000 and 10% debt for Rs 200000
The company?s existing earnings before interest and taxes are Rs 400000. The rate of corporate tax is
50%. Determine the earnings per share in each plan and give your comment.
3
Gama Fertilizers Company is taking over Theta Petrochemical Company. The shareholders of Theta
would receive 0.8 shares of Gama for each share held by them. The merger is not expected to yield in
economies of scale & operating synergy. The relevant data for the two companies is as follow:
Particulars Gama Theta
Net Sales (Rs Crore) 335 118
Profit after tax (Rs Crore) 58 12
Number of share (Crore) 12 3
Earnings per share (Rs) 4.83 4
Market value per share (Rs) 30 20
Price-earnings ratio 6.21 5
For the combined company (after merger), you are required to calculate
A. EPS,
B. P/E Ratio,
C. Market value per share,
D. Number of shares and
E. Total market capitalization.
F. Also calculate the premium paid by Gama to the shareholders of Theta.
4
A company is considering the lease of an equipment which has a purchase price of Rs.3,50,000. The
equipment has an estimated economic life of 5 years. As per the Income Tax Rule, a written down
depreciation at 25 per cent is allowed. The lease rentals per year are Rs.1,20,000. Assume that the
company?s marginal corporate tax rate is 50 per cent. If the before-tax borrowing rate for the company is
16 per cent, should the company lease the equipment? Ignore tax shield on depreciation after 5 years.
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?
DEPARTMENT OF MANAGEMENT STUDIES
QUESTION BANK
III SEMESTER
BA5013 ? STRATEGIC INVESTMENT AND FINANCING DECISIONS
Regulation ? 2017
Academic Year 2019 - 2020
Prepared by
Mrs. A. UmaDevi ? Asst. Professor
Mr. K. Suresh ? Asst. Professor
? .
DEPARTMENT OFMANAGEMENT STUDIES
QUESTION BANK
SUBJECT : BA5013 ? STRATEGIC INVESTMENT AND FINANCING DECISIONS
SEM / YEAR : III Semester / II Year
UNIT ? I ? INVESTMENT DECISIONS
SYLLABUS: Project Investment Management Vs Project Management ? Introduction to profitable
projects ? evaluation of Investment opportunities ? Investment decisions under conditions of uncertainty
? Risk analysis in Investment decision ? Types of investments and disinvestments.
PART- A
S.NO QUESTIONS BT LEVEL COMPETENCE
1
What is Investment Management?
Level 1 Remembering
2
Compare Project Investment management and Project
Management.
Level 2 Understanding
3
Identify the features of Investment decisions.
Level 3 Applying
4
Classify the different ways of evaluating investment
opportunities.
Level 4 Analysing
5
Give the objectives of profitable project.
Level 5 Evaluating
6
Can you assess the importance of discounted cash flow method?
Level 6 Creating
7
What is uncertainty in financial investment?
Level 1 Remembering
8
Distinguish RAD and CE.
Level 2 Understanding
9
Identify the different types of Investment.
Level 3 Applying
10
Summarize the concept of Capital Budgeting.
Level 4 Analysing
11
Give five qualities required for successful investing.
Level 5 Evaluating
12
Interpret the objectives of Investment.
Level 6 Creating
13
Define Project Management.
Level 1 Remembering
14
Distinguish between systematic & unsystematic risk.
Level 2 Understanding
15
How is Disinvestment undertaken?
Level 3 Applying
16
Classify the types of Disinvestments.
Level 4 Analysing
17
What are the principal methods employed for ascertaining the
profitability of capital expenditure project?
Level 1 Remembering
18
Differentiate Investment and Disinvestment.
Level 2 Understanding
19
Explain the term ?Project Profitability? in investment
management.
Level 1 Remembering
20
How do you measure risk by means of standard deviation &
Coefficient of Variance?
Level 1 Remembering
PART- B
S.NO QUESTIONS BT LEVEL COMPETENCE
1
What key issues are examined while making a major
Investment decision?
Level 1 Remembering
2 Identify the different types of investments and its features. Level 2 Understanding
3 Explain the different kinds of project risks. Level 3 Applying
4
i) Discuss the steps involved in Simulation analysis. (5
marks)
Level 4 Analysing
ii) What are the pros and cons of simulation analysis? (8
marks)
5
Critically examine how you would assess the profitability of
a project.
Level 5 Evaluating
6.
Interpret Sensitivity analysis method of investment analysis
with an example.
Level 6 Creating
7
How will you analyze the risk before taking any investment
decision?
Level 1 Remembering
8 Discuss the disinvestment methods available for corporates. Level 2 Understanding
9 Describe the advantages of investments. Level 3 Applying
10 Explain the evaluation of Investment Opportunities. Level 4 Analysing
11
?Risk analysis is an essential feature of investment decision
making process?. What are the major risk factors and how
will you control them?
Level 1 Remembering
12
Define Capital budgeting. Explain briefly the various risk
management techniques in capital budgeting with
illustrations.
Level 2 Understanding
13
X company is considering two projects M&N, each of which
require an initial outlay of Rs.50 lakhs. The expected cash
inflows from these projects are:
Year Project M Project N
1 12 37
2 18 24
3 33 19
4 36 12
1. What is the PBP for each of the project?
2. If the two projects are mutually exclusive and the cost of
capital is 15%. Which project should the firm invest in?
3. If cost of capital is 14%, What is the modified IRR of
each project?
Level 4 Analysing
14
From the following information, ascertain which project
should be selected on the basis of standard deviation.
Project X Project Y
Cash
Inflow
Probability
Cash
Inflow
Probability
3200 0.2 2400 0.1
5500 0.3 7400 0.4
7400 0.3 8800 0.4
8900 0.2 5500 0.1
Level 1 Remembering
PART - C
S.NO QUESTIONS
1
Capital expenditure decisions are by far the most important decisions in the field of management. Illustrate
2
There are 3 securities X, Y, and Z. The returns are given as below; Select the securities based on risk and
return. Calculate average returns, variance and standard deviation.
Security X 30 20 22 33 15
Security Y -20 10 20 10 20
Security Z -20 -10 -5 10 30
3
Is there any difference between risk and uncertainty? Elucidate about capital budgeting decisions in an
organization.
4
How can Utility theory be incorporated in the capital budgeting decision to account for the risk preferences
of the decision maker?
UNIT ? II ? CRITICAL ANALYSIS OF APPRAISAL TECHNIQUES
SYLLABUS: Significance of Information and data bank in project selections ? Investment decisions
under capital constraints ? capital rationing, Portfolio ? Portfolio risk and diversified projects.
PART- A
S.NO QUESTIONS BT LEVEL COMPETENCE
1
Define Capital rationing.
Level 1 Remembering
2 Compare capital constraint on risk analysis. Level 2 Understanding
3
Identify the different steps in decision tree.
Level 3 Applying
4 Classify the different ways of evaluating project selection. Level 4 Analysing
5 Give the objectives of data bank in project selection. Level 5 Evaluating
6
Can you assess the importance of data bank in project
selection?
Level 6 Creating
7
What is meant by Capital constraint?
Level 1 Remembering
8
Draw a decision tree & illustrate.
Level 2 Understanding
9
Identify the steps in Simulation analysis.
Level 3 Applying
10 What is Capital constraint? Level 4 Analysing
11
Give a note on risky investments.
Level 5 Evaluating
12
Interpret the objectives of project selection.
Level 6 Creating
13 Define Capital rationing. Level 1 Remembering
14
Compare portfolio risk & diversification.
Level 2 Understanding
15
How is Portfolio diversification undertaken?
Level 3 Applying
16 Identify the features of diversification. Level 4 Analysing
17
What are the advantages & disadvantages of decision tree
approach?
Level 1 Remembering
18
Write down the need for portfolio diversification.
Level 2 Understanding
19
What is portfolio risk?
Level 1 Remembering
20 How do you measure risk by means of Sensitivity analysis? Level 1 Remembering
PART- B
S.NO QUESTIONS BT LEVEL COMPETENCE
1
Discuss about examination of the secondary information for
reliability and relevance for the consideration purpose.
Level 1 Remembering
2
Narrate the various techniques used to construct a good
portfolio.
Level 2 Understanding
3
Elucidate the various techniques available for incorporating
risk factor in capital investment proposals with practical
examples.
Level 3 Applying
4 Explain the programming approach to capital rationing. Level 4 Analysing
5
From the following information state which project is
preferred? Two alternative projects are available (project X
and project Y) each costing Rs.10,00,000. The company has a
target return on capital (riskless discount rate) of 10%. The
management considers risk premium rate at 2 percent and 8
percent respectively, project X and project Y.
Year 1 2 3 4
Project X 400000 350000 250000 200000
Project Y 500000 400000 300000 200000
Level 5 Evaluating
6.
From the under mentioned facts, compute the NPV of the
two projects for the each of the possible cash flows, using
Sensitivity Analysis.
Particulars
Project X
('000)
Project
Y ('000)
Initial Cash
Outlay (t0)
Rs 40 Rs 40
Cash flow
Estimates
(t-1-15)
Worst 6 0
Most
Likely
8 8
Best 10 16
Required Rate
of Return
0.1 0.1
Economic Life
(in years)
5 15
Level 6 Creating
7
M/S Zenith Enterprises is considering a project with the
following cash flows:
Year
Cost of Plant
(Rs.)
Running Cost
(Rs.)
Savings
(Rs.)
0 (7000)
1 2000 6000
2 2500 7000
The Cost of Capital of firm is 8%. Measure the sensitivity of
the project to changes in the levels of plant value, costs and
savings (considering each factor at a time) such that the net
present value of the project becomes zero. What factor is the
most sensitive to affect the acceptability of the project?
Level 1 Remembering
8
Mr. Selva is considering two mutually exclusive project ?X?
and ?Y?. You are required to advise him about the
acceptability of the projects from the following information.
The cut-off rate may be assumed to be 15%.
Project X Project Y
Cost of the Investment 1,00,000 1,00,000
Forecast cash inflows per
annum for 5 years
Optimistic 60000 55000
Most likely 35000 30000
Pessimistic 20000 20000
Level 2 Understanding
9
A company is considering two mutually exclusive projects,
both require an initial cash outlay of Rs. 10,000 each and have
a life of 5 years. The company?s required rate of return 10%
and pays tax at 50 %. The project will be depreciated on a
straight-line basis. The before tax cash flows expected to be
generated by the project are as follows.
Before tax cash flows:
Year Project A Project B
1 4,000 5,000
2 4,000 5,000
3 4,000 2,000
4 4,000 5,000
5 4,000 5,000
Calculate for each project: (i) PBP (ii) NPV (iii) PI. Which
project should be accepted and why?
Level 3 Applying
10
Determine the payback period from the following cash flows
Year CFAT
0 100000
1 20000
2 30000
3 40000
4 50000
5 60000
Level 4 Analysing
11
How the principles of capital rationing are considered as best
evaluation technique under such circumstances?
Level 1 Remembering
12 What are the circumstances NPV & IRR differ? Level 2 Understanding
13
How would you select the investment projects under one-
period capital constraints?
Level 4 Analysing
14
X ltd has five projects. Details are given below. Rank the
five projects based on NPV and IRR. The discount rate is
10%.
Project
Investment
Outlay (Rs.)
Expected
Annual Cash
Inflow (Rs.)
Project
life(years)
M
50,000 18,000 10
N 1,00,000 50,000 4
O 1,20,000 30,000 8
P 1,50,000 40,000 16
Q 2,00,000 30,000 25
Level 1 Remembering
PART - C
S.NO QUESTIONS
1
X ltd is considering the purchase of a new plant requiring a cash outlay of Rs.20,000. The plant is
expected to have a useful life of 2 years without any salvage value. The cash flows and their associated
probabilities for the two years are as follows: Presuming that 10% is the cost of capital you plot the above
data in the form of a decision tree and suggest whether the project should be taken up or not.
First Year Cash Flow Probability
I 8000 0.3
II 11000 0.4
III 15000 0.3
Second Year, if First year Cash Flow is 8000
Cash Flow Probability
I 4000 0.2
II 10000 0.6
III 15000 0.2
Second Year, if First year Cash Flow is 11000
Cash Flow Probability
I 13000 0.3
II 15000 0.4
III 16000 0.3
Second Year, if First year Cash Flow is 15000
Cash Flow Probability
I 16000 0.1
II 20000 0.8
III 24000 0.1
2
A firm has an investment proposal, requiring an outlay of Rs.40,000. The investment proposal is expected
to have 2 years economical life with no salvage value. In year I, there is a 0.4 probability that cash inflow
after tax will be Rs.25000 and 0.6 probabilities that cash inflow after tax will be Rs.30,000. The
probability assigned to cash inflow after tax for the year II are as follows: The firm uses a 10% discount
rate for this type of investment. Construct a decision tree for the proposed investment project.
Cash Inflow Year I Rs.25000 Rs.30000
Cash Inflow Year II
with probabilities
Rs.12000
Rs.16000
Rs.22000
0.2
0.3
0.5
Rs.20000
Rs.25000
Rs.30000
0.4
0.5
0.1
3
What is Profitability Index? Which is a superior ranking criterion, profitability index or NPV?
4
Do you think Capital rationing lead to sub-optimal investment decision? Explain
UNIT ? III ? STRATEGIC ANALYSIS OF SELECTED INVESTMENT
SYLLABUS: Lease financing ? Lease Vs Buy decision ? Hire Purchase and installment decision ? Hire
Purchase Vs Lease Decision ? Mergers and acquisition ? Cash Vs Equity for mergers.
PART- A
S.NO QUESTIONS BT LEVEL COMPETENCE
1 Define Leasing. Level 1 Remembering
2
Compare Lease and Buy decision.
Level 2 Understanding
3
Identify the features of Lease financing.
Level 3 Applying
4 Classify the different types of Lease. Level 4 Analysing
5
Give the objectives of Lease financing.
Level 5 Evaluating
6 Can you assess the importance of buying decision? Level 6 Creating
7
Define Hire purchase?
Level 1 Remembering
8 Distinguish Hire purchase and Installment decision. Level 2 Understanding
9
Identify the different types of Hire purchase agreements.
Level 3 Applying
10 Summarize the concept of Installment decision. Level 4 Analysing
11
Give the characteristic features of hire purchase.
Level 5 Evaluating
12
Can you interpret about the parties involved in hire
purchase?
Level 6 Creating
13 Define Merger. Level 1 Remembering
14
Distinguish between Merger & Acquisition.
Level 2 Understanding
15
Identify the features of Merger.
Level 3 Applying
16
Classify the types of Merger.
Level 4 Analysing
17
What is tripartite lease?
Level 1 Remembering
18 Compare Cash and Stock payment Merger. Level 2 Understanding
19 What is meant by reverse Merger & Acquisition? Level 1 Remembering
20
What are the objectives & benefits of Merger &
Acquisition?
Level 1 Remembering
PART- B
S.NO QUESTIONS BT LEVEL COMPETENCE
1
What are the salient features of a leasing arrangement? How
would you choose between leasing and buying?
Level 1 Remembering
2 Explain the different types of Leasing and its features. Level 2 Understanding
3
Identify the steps considered while making investment
decision of leasing or buying.
Level 3 Applying
4 Critically analyse the various types of investment decisions. Level 4 Analysing
5
Discuss the essential elements advantages for lessor and
lessee in leasing.
Level 5 Evaluating
6.
(i)Interpret the tax considerations on Hire purchasing
decision.
(ii)What are the pros and cons of Hire purchasing?
Level 6 Creating
7
(i)What are the methods of Hire Purchase system?
(ii)What do you understand by Installment Purchase
system? Elaborate its features.
Level 1 Remembering
8 Distinguish between leasing and Hire purchasing. Level 2 Understanding
9
Describe the of Leasing.
Level 3 Applying
10
Evaluate the guidelines followed by banks in Hire purchase
.
Level 4 Analysing
11 Highlight the real motives of mergers and acquisitions. Level 1 Remembering
12
Elucidate the different types of Merger. Also explain
important reasons for mergers.
Level 2 Understanding
13
(i) Evaluate the payment methods in M&A.
(ii)What are the benefits of stock payment merger?
Level 4 Analysing
14
Describe the various steps involved in a Merger and the
strategies involved in handling it.
Level 1 Remembering
PART - C
S.NO QUESTIONS
1
You work for a nuclear research laboratory that is contemplating leasing a diagnostic scanner (leasing is a
very common practice with expensive, high-tech equipment). The scanner costs Rs.10,00,000 and it
qualifies for a 30 percent CCA rate. Because of radiation contamination, it is valueless in four years. You
can lease it for Rs.3,00,000 per year for four years. Assume that the tax rate is 40 percent. You can
borrow at 8 percent pretax. Should you lease or buy?
2
Sunshine limited has an equity capital 6000 shares of Rs 100 each. The company plans to raise Rs400000
for expansion and modernization. The following alternatives are under consideration.
a) Issue of common stock
b) Issue of common stock for Rs 200000 and 10% debt for Rs 200000.
c) Issue of 10 % debt.
d) Issue of 10% preference shares of Rs 200000 and 10% debt for Rs 200000
The company?s existing earnings before interest and taxes are Rs 400000. The rate of corporate tax is
50%. Determine the earnings per share in each plan and give your comment.
3
Gama Fertilizers Company is taking over Theta Petrochemical Company. The shareholders of Theta
would receive 0.8 shares of Gama for each share held by them. The merger is not expected to yield in
economies of scale & operating synergy. The relevant data for the two companies is as follow:
Particulars Gama Theta
Net Sales (Rs Crore) 335 118
Profit after tax (Rs Crore) 58 12
Number of share (Crore) 12 3
Earnings per share (Rs) 4.83 4
Market value per share (Rs) 30 20
Price-earnings ratio 6.21 5
For the combined company (after merger), you are required to calculate
A. EPS,
B. P/E Ratio,
C. Market value per share,
D. Number of shares and
E. Total market capitalization.
F. Also calculate the premium paid by Gama to the shareholders of Theta.
4
A company is considering the lease of an equipment which has a purchase price of Rs.3,50,000. The
equipment has an estimated economic life of 5 years. As per the Income Tax Rule, a written down
depreciation at 25 per cent is allowed. The lease rentals per year are Rs.1,20,000. Assume that the
company?s marginal corporate tax rate is 50 per cent. If the before-tax borrowing rate for the company is
16 per cent, should the company lease the equipment? Ignore tax shield on depreciation after 5 years.
UNIT ? IV ? FINANCING DECISIONS
SYLLABUS: Capital Structure ? Capital structure theories ? Capital structure Planning in Practice
PART- A
S.NO QUESTIONS BT LEVEL COMPETENCE
1 Define Financial Leverage. Level 1 Remembering
2 Compare operating and financial leverage. Level 2 Understanding
3 Identify the bases of determining capital structure. Level 3 Applying
4 Classify the different forms of Capital Structure. Level 4 Analysing
5
Give the objectives of composite leverage.
Level 5 Evaluating
6
Can you assess the importance of arbitrage pricing in capital
structure theory?
Level 6 Creating
7
State the elements of Capital structure.
Level 1 Remembering
8 Distinguish NI and NOI approaches of Capital structure. Level 2 Understanding
9
Identify the different components of capital structure.
Level 3 Applying
10
Summarize the concept of Trading on equity.
Level 4 Analysing
11
Give the characteristic features of debt equity ratio and
interest coverage ratio.
Level 5 Evaluating
12
Can you interpret the existence of operating leverage in a
firm?s capital structure?
Level 6 Creating
13 What do you understand by EBIT? Level 1 Remembering
14
Write a note on EBIT-EPS analysis.
Level 2 Understanding
15 State the assumptions of MM approach. Level 3 Applying
16 Classify the types of Capital structure theories. Level 4 Analysing
17 What are the various forms of Cost based theories? Level 1 Remembering
18 Compare and Contrast arguments on MM approach. Level 2 Understanding
19
What is meant by Pecking order theory?
Level 1 Remembering
20
What do you understand by indifference point?
Level 1 Remembering
FirstRanker.com - FirstRanker's Choice
?
DEPARTMENT OF MANAGEMENT STUDIES
QUESTION BANK
III SEMESTER
BA5013 ? STRATEGIC INVESTMENT AND FINANCING DECISIONS
Regulation ? 2017
Academic Year 2019 - 2020
Prepared by
Mrs. A. UmaDevi ? Asst. Professor
Mr. K. Suresh ? Asst. Professor
? .
DEPARTMENT OFMANAGEMENT STUDIES
QUESTION BANK
SUBJECT : BA5013 ? STRATEGIC INVESTMENT AND FINANCING DECISIONS
SEM / YEAR : III Semester / II Year
UNIT ? I ? INVESTMENT DECISIONS
SYLLABUS: Project Investment Management Vs Project Management ? Introduction to profitable
projects ? evaluation of Investment opportunities ? Investment decisions under conditions of uncertainty
? Risk analysis in Investment decision ? Types of investments and disinvestments.
PART- A
S.NO QUESTIONS BT LEVEL COMPETENCE
1
What is Investment Management?
Level 1 Remembering
2
Compare Project Investment management and Project
Management.
Level 2 Understanding
3
Identify the features of Investment decisions.
Level 3 Applying
4
Classify the different ways of evaluating investment
opportunities.
Level 4 Analysing
5
Give the objectives of profitable project.
Level 5 Evaluating
6
Can you assess the importance of discounted cash flow method?
Level 6 Creating
7
What is uncertainty in financial investment?
Level 1 Remembering
8
Distinguish RAD and CE.
Level 2 Understanding
9
Identify the different types of Investment.
Level 3 Applying
10
Summarize the concept of Capital Budgeting.
Level 4 Analysing
11
Give five qualities required for successful investing.
Level 5 Evaluating
12
Interpret the objectives of Investment.
Level 6 Creating
13
Define Project Management.
Level 1 Remembering
14
Distinguish between systematic & unsystematic risk.
Level 2 Understanding
15
How is Disinvestment undertaken?
Level 3 Applying
16
Classify the types of Disinvestments.
Level 4 Analysing
17
What are the principal methods employed for ascertaining the
profitability of capital expenditure project?
Level 1 Remembering
18
Differentiate Investment and Disinvestment.
Level 2 Understanding
19
Explain the term ?Project Profitability? in investment
management.
Level 1 Remembering
20
How do you measure risk by means of standard deviation &
Coefficient of Variance?
Level 1 Remembering
PART- B
S.NO QUESTIONS BT LEVEL COMPETENCE
1
What key issues are examined while making a major
Investment decision?
Level 1 Remembering
2 Identify the different types of investments and its features. Level 2 Understanding
3 Explain the different kinds of project risks. Level 3 Applying
4
i) Discuss the steps involved in Simulation analysis. (5
marks)
Level 4 Analysing
ii) What are the pros and cons of simulation analysis? (8
marks)
5
Critically examine how you would assess the profitability of
a project.
Level 5 Evaluating
6.
Interpret Sensitivity analysis method of investment analysis
with an example.
Level 6 Creating
7
How will you analyze the risk before taking any investment
decision?
Level 1 Remembering
8 Discuss the disinvestment methods available for corporates. Level 2 Understanding
9 Describe the advantages of investments. Level 3 Applying
10 Explain the evaluation of Investment Opportunities. Level 4 Analysing
11
?Risk analysis is an essential feature of investment decision
making process?. What are the major risk factors and how
will you control them?
Level 1 Remembering
12
Define Capital budgeting. Explain briefly the various risk
management techniques in capital budgeting with
illustrations.
Level 2 Understanding
13
X company is considering two projects M&N, each of which
require an initial outlay of Rs.50 lakhs. The expected cash
inflows from these projects are:
Year Project M Project N
1 12 37
2 18 24
3 33 19
4 36 12
1. What is the PBP for each of the project?
2. If the two projects are mutually exclusive and the cost of
capital is 15%. Which project should the firm invest in?
3. If cost of capital is 14%, What is the modified IRR of
each project?
Level 4 Analysing
14
From the following information, ascertain which project
should be selected on the basis of standard deviation.
Project X Project Y
Cash
Inflow
Probability
Cash
Inflow
Probability
3200 0.2 2400 0.1
5500 0.3 7400 0.4
7400 0.3 8800 0.4
8900 0.2 5500 0.1
Level 1 Remembering
PART - C
S.NO QUESTIONS
1
Capital expenditure decisions are by far the most important decisions in the field of management. Illustrate
2
There are 3 securities X, Y, and Z. The returns are given as below; Select the securities based on risk and
return. Calculate average returns, variance and standard deviation.
Security X 30 20 22 33 15
Security Y -20 10 20 10 20
Security Z -20 -10 -5 10 30
3
Is there any difference between risk and uncertainty? Elucidate about capital budgeting decisions in an
organization.
4
How can Utility theory be incorporated in the capital budgeting decision to account for the risk preferences
of the decision maker?
UNIT ? II ? CRITICAL ANALYSIS OF APPRAISAL TECHNIQUES
SYLLABUS: Significance of Information and data bank in project selections ? Investment decisions
under capital constraints ? capital rationing, Portfolio ? Portfolio risk and diversified projects.
PART- A
S.NO QUESTIONS BT LEVEL COMPETENCE
1
Define Capital rationing.
Level 1 Remembering
2 Compare capital constraint on risk analysis. Level 2 Understanding
3
Identify the different steps in decision tree.
Level 3 Applying
4 Classify the different ways of evaluating project selection. Level 4 Analysing
5 Give the objectives of data bank in project selection. Level 5 Evaluating
6
Can you assess the importance of data bank in project
selection?
Level 6 Creating
7
What is meant by Capital constraint?
Level 1 Remembering
8
Draw a decision tree & illustrate.
Level 2 Understanding
9
Identify the steps in Simulation analysis.
Level 3 Applying
10 What is Capital constraint? Level 4 Analysing
11
Give a note on risky investments.
Level 5 Evaluating
12
Interpret the objectives of project selection.
Level 6 Creating
13 Define Capital rationing. Level 1 Remembering
14
Compare portfolio risk & diversification.
Level 2 Understanding
15
How is Portfolio diversification undertaken?
Level 3 Applying
16 Identify the features of diversification. Level 4 Analysing
17
What are the advantages & disadvantages of decision tree
approach?
Level 1 Remembering
18
Write down the need for portfolio diversification.
Level 2 Understanding
19
What is portfolio risk?
Level 1 Remembering
20 How do you measure risk by means of Sensitivity analysis? Level 1 Remembering
PART- B
S.NO QUESTIONS BT LEVEL COMPETENCE
1
Discuss about examination of the secondary information for
reliability and relevance for the consideration purpose.
Level 1 Remembering
2
Narrate the various techniques used to construct a good
portfolio.
Level 2 Understanding
3
Elucidate the various techniques available for incorporating
risk factor in capital investment proposals with practical
examples.
Level 3 Applying
4 Explain the programming approach to capital rationing. Level 4 Analysing
5
From the following information state which project is
preferred? Two alternative projects are available (project X
and project Y) each costing Rs.10,00,000. The company has a
target return on capital (riskless discount rate) of 10%. The
management considers risk premium rate at 2 percent and 8
percent respectively, project X and project Y.
Year 1 2 3 4
Project X 400000 350000 250000 200000
Project Y 500000 400000 300000 200000
Level 5 Evaluating
6.
From the under mentioned facts, compute the NPV of the
two projects for the each of the possible cash flows, using
Sensitivity Analysis.
Particulars
Project X
('000)
Project
Y ('000)
Initial Cash
Outlay (t0)
Rs 40 Rs 40
Cash flow
Estimates
(t-1-15)
Worst 6 0
Most
Likely
8 8
Best 10 16
Required Rate
of Return
0.1 0.1
Economic Life
(in years)
5 15
Level 6 Creating
7
M/S Zenith Enterprises is considering a project with the
following cash flows:
Year
Cost of Plant
(Rs.)
Running Cost
(Rs.)
Savings
(Rs.)
0 (7000)
1 2000 6000
2 2500 7000
The Cost of Capital of firm is 8%. Measure the sensitivity of
the project to changes in the levels of plant value, costs and
savings (considering each factor at a time) such that the net
present value of the project becomes zero. What factor is the
most sensitive to affect the acceptability of the project?
Level 1 Remembering
8
Mr. Selva is considering two mutually exclusive project ?X?
and ?Y?. You are required to advise him about the
acceptability of the projects from the following information.
The cut-off rate may be assumed to be 15%.
Project X Project Y
Cost of the Investment 1,00,000 1,00,000
Forecast cash inflows per
annum for 5 years
Optimistic 60000 55000
Most likely 35000 30000
Pessimistic 20000 20000
Level 2 Understanding
9
A company is considering two mutually exclusive projects,
both require an initial cash outlay of Rs. 10,000 each and have
a life of 5 years. The company?s required rate of return 10%
and pays tax at 50 %. The project will be depreciated on a
straight-line basis. The before tax cash flows expected to be
generated by the project are as follows.
Before tax cash flows:
Year Project A Project B
1 4,000 5,000
2 4,000 5,000
3 4,000 2,000
4 4,000 5,000
5 4,000 5,000
Calculate for each project: (i) PBP (ii) NPV (iii) PI. Which
project should be accepted and why?
Level 3 Applying
10
Determine the payback period from the following cash flows
Year CFAT
0 100000
1 20000
2 30000
3 40000
4 50000
5 60000
Level 4 Analysing
11
How the principles of capital rationing are considered as best
evaluation technique under such circumstances?
Level 1 Remembering
12 What are the circumstances NPV & IRR differ? Level 2 Understanding
13
How would you select the investment projects under one-
period capital constraints?
Level 4 Analysing
14
X ltd has five projects. Details are given below. Rank the
five projects based on NPV and IRR. The discount rate is
10%.
Project
Investment
Outlay (Rs.)
Expected
Annual Cash
Inflow (Rs.)
Project
life(years)
M
50,000 18,000 10
N 1,00,000 50,000 4
O 1,20,000 30,000 8
P 1,50,000 40,000 16
Q 2,00,000 30,000 25
Level 1 Remembering
PART - C
S.NO QUESTIONS
1
X ltd is considering the purchase of a new plant requiring a cash outlay of Rs.20,000. The plant is
expected to have a useful life of 2 years without any salvage value. The cash flows and their associated
probabilities for the two years are as follows: Presuming that 10% is the cost of capital you plot the above
data in the form of a decision tree and suggest whether the project should be taken up or not.
First Year Cash Flow Probability
I 8000 0.3
II 11000 0.4
III 15000 0.3
Second Year, if First year Cash Flow is 8000
Cash Flow Probability
I 4000 0.2
II 10000 0.6
III 15000 0.2
Second Year, if First year Cash Flow is 11000
Cash Flow Probability
I 13000 0.3
II 15000 0.4
III 16000 0.3
Second Year, if First year Cash Flow is 15000
Cash Flow Probability
I 16000 0.1
II 20000 0.8
III 24000 0.1
2
A firm has an investment proposal, requiring an outlay of Rs.40,000. The investment proposal is expected
to have 2 years economical life with no salvage value. In year I, there is a 0.4 probability that cash inflow
after tax will be Rs.25000 and 0.6 probabilities that cash inflow after tax will be Rs.30,000. The
probability assigned to cash inflow after tax for the year II are as follows: The firm uses a 10% discount
rate for this type of investment. Construct a decision tree for the proposed investment project.
Cash Inflow Year I Rs.25000 Rs.30000
Cash Inflow Year II
with probabilities
Rs.12000
Rs.16000
Rs.22000
0.2
0.3
0.5
Rs.20000
Rs.25000
Rs.30000
0.4
0.5
0.1
3
What is Profitability Index? Which is a superior ranking criterion, profitability index or NPV?
4
Do you think Capital rationing lead to sub-optimal investment decision? Explain
UNIT ? III ? STRATEGIC ANALYSIS OF SELECTED INVESTMENT
SYLLABUS: Lease financing ? Lease Vs Buy decision ? Hire Purchase and installment decision ? Hire
Purchase Vs Lease Decision ? Mergers and acquisition ? Cash Vs Equity for mergers.
PART- A
S.NO QUESTIONS BT LEVEL COMPETENCE
1 Define Leasing. Level 1 Remembering
2
Compare Lease and Buy decision.
Level 2 Understanding
3
Identify the features of Lease financing.
Level 3 Applying
4 Classify the different types of Lease. Level 4 Analysing
5
Give the objectives of Lease financing.
Level 5 Evaluating
6 Can you assess the importance of buying decision? Level 6 Creating
7
Define Hire purchase?
Level 1 Remembering
8 Distinguish Hire purchase and Installment decision. Level 2 Understanding
9
Identify the different types of Hire purchase agreements.
Level 3 Applying
10 Summarize the concept of Installment decision. Level 4 Analysing
11
Give the characteristic features of hire purchase.
Level 5 Evaluating
12
Can you interpret about the parties involved in hire
purchase?
Level 6 Creating
13 Define Merger. Level 1 Remembering
14
Distinguish between Merger & Acquisition.
Level 2 Understanding
15
Identify the features of Merger.
Level 3 Applying
16
Classify the types of Merger.
Level 4 Analysing
17
What is tripartite lease?
Level 1 Remembering
18 Compare Cash and Stock payment Merger. Level 2 Understanding
19 What is meant by reverse Merger & Acquisition? Level 1 Remembering
20
What are the objectives & benefits of Merger &
Acquisition?
Level 1 Remembering
PART- B
S.NO QUESTIONS BT LEVEL COMPETENCE
1
What are the salient features of a leasing arrangement? How
would you choose between leasing and buying?
Level 1 Remembering
2 Explain the different types of Leasing and its features. Level 2 Understanding
3
Identify the steps considered while making investment
decision of leasing or buying.
Level 3 Applying
4 Critically analyse the various types of investment decisions. Level 4 Analysing
5
Discuss the essential elements advantages for lessor and
lessee in leasing.
Level 5 Evaluating
6.
(i)Interpret the tax considerations on Hire purchasing
decision.
(ii)What are the pros and cons of Hire purchasing?
Level 6 Creating
7
(i)What are the methods of Hire Purchase system?
(ii)What do you understand by Installment Purchase
system? Elaborate its features.
Level 1 Remembering
8 Distinguish between leasing and Hire purchasing. Level 2 Understanding
9
Describe the of Leasing.
Level 3 Applying
10
Evaluate the guidelines followed by banks in Hire purchase
.
Level 4 Analysing
11 Highlight the real motives of mergers and acquisitions. Level 1 Remembering
12
Elucidate the different types of Merger. Also explain
important reasons for mergers.
Level 2 Understanding
13
(i) Evaluate the payment methods in M&A.
(ii)What are the benefits of stock payment merger?
Level 4 Analysing
14
Describe the various steps involved in a Merger and the
strategies involved in handling it.
Level 1 Remembering
PART - C
S.NO QUESTIONS
1
You work for a nuclear research laboratory that is contemplating leasing a diagnostic scanner (leasing is a
very common practice with expensive, high-tech equipment). The scanner costs Rs.10,00,000 and it
qualifies for a 30 percent CCA rate. Because of radiation contamination, it is valueless in four years. You
can lease it for Rs.3,00,000 per year for four years. Assume that the tax rate is 40 percent. You can
borrow at 8 percent pretax. Should you lease or buy?
2
Sunshine limited has an equity capital 6000 shares of Rs 100 each. The company plans to raise Rs400000
for expansion and modernization. The following alternatives are under consideration.
a) Issue of common stock
b) Issue of common stock for Rs 200000 and 10% debt for Rs 200000.
c) Issue of 10 % debt.
d) Issue of 10% preference shares of Rs 200000 and 10% debt for Rs 200000
The company?s existing earnings before interest and taxes are Rs 400000. The rate of corporate tax is
50%. Determine the earnings per share in each plan and give your comment.
3
Gama Fertilizers Company is taking over Theta Petrochemical Company. The shareholders of Theta
would receive 0.8 shares of Gama for each share held by them. The merger is not expected to yield in
economies of scale & operating synergy. The relevant data for the two companies is as follow:
Particulars Gama Theta
Net Sales (Rs Crore) 335 118
Profit after tax (Rs Crore) 58 12
Number of share (Crore) 12 3
Earnings per share (Rs) 4.83 4
Market value per share (Rs) 30 20
Price-earnings ratio 6.21 5
For the combined company (after merger), you are required to calculate
A. EPS,
B. P/E Ratio,
C. Market value per share,
D. Number of shares and
E. Total market capitalization.
F. Also calculate the premium paid by Gama to the shareholders of Theta.
4
A company is considering the lease of an equipment which has a purchase price of Rs.3,50,000. The
equipment has an estimated economic life of 5 years. As per the Income Tax Rule, a written down
depreciation at 25 per cent is allowed. The lease rentals per year are Rs.1,20,000. Assume that the
company?s marginal corporate tax rate is 50 per cent. If the before-tax borrowing rate for the company is
16 per cent, should the company lease the equipment? Ignore tax shield on depreciation after 5 years.
UNIT ? IV ? FINANCING DECISIONS
SYLLABUS: Capital Structure ? Capital structure theories ? Capital structure Planning in Practice
PART- A
S.NO QUESTIONS BT LEVEL COMPETENCE
1 Define Financial Leverage. Level 1 Remembering
2 Compare operating and financial leverage. Level 2 Understanding
3 Identify the bases of determining capital structure. Level 3 Applying
4 Classify the different forms of Capital Structure. Level 4 Analysing
5
Give the objectives of composite leverage.
Level 5 Evaluating
6
Can you assess the importance of arbitrage pricing in capital
structure theory?
Level 6 Creating
7
State the elements of Capital structure.
Level 1 Remembering
8 Distinguish NI and NOI approaches of Capital structure. Level 2 Understanding
9
Identify the different components of capital structure.
Level 3 Applying
10
Summarize the concept of Trading on equity.
Level 4 Analysing
11
Give the characteristic features of debt equity ratio and
interest coverage ratio.
Level 5 Evaluating
12
Can you interpret the existence of operating leverage in a
firm?s capital structure?
Level 6 Creating
13 What do you understand by EBIT? Level 1 Remembering
14
Write a note on EBIT-EPS analysis.
Level 2 Understanding
15 State the assumptions of MM approach. Level 3 Applying
16 Classify the types of Capital structure theories. Level 4 Analysing
17 What are the various forms of Cost based theories? Level 1 Remembering
18 Compare and Contrast arguments on MM approach. Level 2 Understanding
19
What is meant by Pecking order theory?
Level 1 Remembering
20
What do you understand by indifference point?
Level 1 Remembering
PART- B
S.NO QUESTIONS BT LEVEL COMPETENCE
1
What do you understand by Leverage? What are the factors
influencing leverage?
Level 1 Remembering
2
Explain the assumptions and three stages of traditional
approach in Capital Structure Theory.
Level 2 Understanding
3
Identify the computation of Indifference point in EBIT-EPS
analysis. Give examples.
Level 3 Applying
4
Critically analyze the assumptions and implications of NI and
NOI approach.
Level 4 Analysing
5
Discuss about the MM hypothesis on optimum capital
structure.
Level 5 Evaluating
6.
Sales = 1.00.000 units @ Rs.2 per unit
Variable Cost =0.65p
Fixed Cost= Rs.65,000
Interest Charges = Rs.15,000
Dividend Charges = Rs.6000
Tax rate = 35%
No. of Equity Shares = 30000
Calculate
A. EPS
B. What happens when sales increases by 15%
C. Operating Leverage, Financial Leverage & Combined
Leverage
Level 6 Creating
7
List the most critical factors of the determination of the
capital structure.
Level 1 Remembering
8
X Ltd has estimated that for a new product the BEP is 2000
units. If the products are sold at Rs.14 per unit. Variable Cost
amounts to Rs.9 per unit. Calculate Operating leverage for a
sales volume of 2500 units & 3000 units. What do you infer
from data at sales volume of 2500 units and 3000 units?
Level 2 Understanding
9
Calculate the Indifference point considering the following:
Tax rate = 55%
Market price of the share is Rs.100
a) Rs.20,00,000 through equity shares and Rs.10,00,000 @
10% debentures
b) Rs.10,00,000 @ 12% preference shares, Rs.8,00,000 @
10% debentures & Rs.12,00,000 through equity shares.
Level 3 Applying
10
Calculate Indifference point for the following financial
plans:
a) Entire amount through equity shares Rs.30,00,000
b) Rs.15,00,000@10% debentures, Rs.15,00,000 through
equity shares.
c) Rs.10,00,000@12% preference shares & Rs.20,00,000
through equity shares.
Tax rate is 55%, Market Price is Rs.100.
Level 4 Analysing
FirstRanker.com - FirstRanker's Choice
?
DEPARTMENT OF MANAGEMENT STUDIES
QUESTION BANK
III SEMESTER
BA5013 ? STRATEGIC INVESTMENT AND FINANCING DECISIONS
Regulation ? 2017
Academic Year 2019 - 2020
Prepared by
Mrs. A. UmaDevi ? Asst. Professor
Mr. K. Suresh ? Asst. Professor
? .
DEPARTMENT OFMANAGEMENT STUDIES
QUESTION BANK
SUBJECT : BA5013 ? STRATEGIC INVESTMENT AND FINANCING DECISIONS
SEM / YEAR : III Semester / II Year
UNIT ? I ? INVESTMENT DECISIONS
SYLLABUS: Project Investment Management Vs Project Management ? Introduction to profitable
projects ? evaluation of Investment opportunities ? Investment decisions under conditions of uncertainty
? Risk analysis in Investment decision ? Types of investments and disinvestments.
PART- A
S.NO QUESTIONS BT LEVEL COMPETENCE
1
What is Investment Management?
Level 1 Remembering
2
Compare Project Investment management and Project
Management.
Level 2 Understanding
3
Identify the features of Investment decisions.
Level 3 Applying
4
Classify the different ways of evaluating investment
opportunities.
Level 4 Analysing
5
Give the objectives of profitable project.
Level 5 Evaluating
6
Can you assess the importance of discounted cash flow method?
Level 6 Creating
7
What is uncertainty in financial investment?
Level 1 Remembering
8
Distinguish RAD and CE.
Level 2 Understanding
9
Identify the different types of Investment.
Level 3 Applying
10
Summarize the concept of Capital Budgeting.
Level 4 Analysing
11
Give five qualities required for successful investing.
Level 5 Evaluating
12
Interpret the objectives of Investment.
Level 6 Creating
13
Define Project Management.
Level 1 Remembering
14
Distinguish between systematic & unsystematic risk.
Level 2 Understanding
15
How is Disinvestment undertaken?
Level 3 Applying
16
Classify the types of Disinvestments.
Level 4 Analysing
17
What are the principal methods employed for ascertaining the
profitability of capital expenditure project?
Level 1 Remembering
18
Differentiate Investment and Disinvestment.
Level 2 Understanding
19
Explain the term ?Project Profitability? in investment
management.
Level 1 Remembering
20
How do you measure risk by means of standard deviation &
Coefficient of Variance?
Level 1 Remembering
PART- B
S.NO QUESTIONS BT LEVEL COMPETENCE
1
What key issues are examined while making a major
Investment decision?
Level 1 Remembering
2 Identify the different types of investments and its features. Level 2 Understanding
3 Explain the different kinds of project risks. Level 3 Applying
4
i) Discuss the steps involved in Simulation analysis. (5
marks)
Level 4 Analysing
ii) What are the pros and cons of simulation analysis? (8
marks)
5
Critically examine how you would assess the profitability of
a project.
Level 5 Evaluating
6.
Interpret Sensitivity analysis method of investment analysis
with an example.
Level 6 Creating
7
How will you analyze the risk before taking any investment
decision?
Level 1 Remembering
8 Discuss the disinvestment methods available for corporates. Level 2 Understanding
9 Describe the advantages of investments. Level 3 Applying
10 Explain the evaluation of Investment Opportunities. Level 4 Analysing
11
?Risk analysis is an essential feature of investment decision
making process?. What are the major risk factors and how
will you control them?
Level 1 Remembering
12
Define Capital budgeting. Explain briefly the various risk
management techniques in capital budgeting with
illustrations.
Level 2 Understanding
13
X company is considering two projects M&N, each of which
require an initial outlay of Rs.50 lakhs. The expected cash
inflows from these projects are:
Year Project M Project N
1 12 37
2 18 24
3 33 19
4 36 12
1. What is the PBP for each of the project?
2. If the two projects are mutually exclusive and the cost of
capital is 15%. Which project should the firm invest in?
3. If cost of capital is 14%, What is the modified IRR of
each project?
Level 4 Analysing
14
From the following information, ascertain which project
should be selected on the basis of standard deviation.
Project X Project Y
Cash
Inflow
Probability
Cash
Inflow
Probability
3200 0.2 2400 0.1
5500 0.3 7400 0.4
7400 0.3 8800 0.4
8900 0.2 5500 0.1
Level 1 Remembering
PART - C
S.NO QUESTIONS
1
Capital expenditure decisions are by far the most important decisions in the field of management. Illustrate
2
There are 3 securities X, Y, and Z. The returns are given as below; Select the securities based on risk and
return. Calculate average returns, variance and standard deviation.
Security X 30 20 22 33 15
Security Y -20 10 20 10 20
Security Z -20 -10 -5 10 30
3
Is there any difference between risk and uncertainty? Elucidate about capital budgeting decisions in an
organization.
4
How can Utility theory be incorporated in the capital budgeting decision to account for the risk preferences
of the decision maker?
UNIT ? II ? CRITICAL ANALYSIS OF APPRAISAL TECHNIQUES
SYLLABUS: Significance of Information and data bank in project selections ? Investment decisions
under capital constraints ? capital rationing, Portfolio ? Portfolio risk and diversified projects.
PART- A
S.NO QUESTIONS BT LEVEL COMPETENCE
1
Define Capital rationing.
Level 1 Remembering
2 Compare capital constraint on risk analysis. Level 2 Understanding
3
Identify the different steps in decision tree.
Level 3 Applying
4 Classify the different ways of evaluating project selection. Level 4 Analysing
5 Give the objectives of data bank in project selection. Level 5 Evaluating
6
Can you assess the importance of data bank in project
selection?
Level 6 Creating
7
What is meant by Capital constraint?
Level 1 Remembering
8
Draw a decision tree & illustrate.
Level 2 Understanding
9
Identify the steps in Simulation analysis.
Level 3 Applying
10 What is Capital constraint? Level 4 Analysing
11
Give a note on risky investments.
Level 5 Evaluating
12
Interpret the objectives of project selection.
Level 6 Creating
13 Define Capital rationing. Level 1 Remembering
14
Compare portfolio risk & diversification.
Level 2 Understanding
15
How is Portfolio diversification undertaken?
Level 3 Applying
16 Identify the features of diversification. Level 4 Analysing
17
What are the advantages & disadvantages of decision tree
approach?
Level 1 Remembering
18
Write down the need for portfolio diversification.
Level 2 Understanding
19
What is portfolio risk?
Level 1 Remembering
20 How do you measure risk by means of Sensitivity analysis? Level 1 Remembering
PART- B
S.NO QUESTIONS BT LEVEL COMPETENCE
1
Discuss about examination of the secondary information for
reliability and relevance for the consideration purpose.
Level 1 Remembering
2
Narrate the various techniques used to construct a good
portfolio.
Level 2 Understanding
3
Elucidate the various techniques available for incorporating
risk factor in capital investment proposals with practical
examples.
Level 3 Applying
4 Explain the programming approach to capital rationing. Level 4 Analysing
5
From the following information state which project is
preferred? Two alternative projects are available (project X
and project Y) each costing Rs.10,00,000. The company has a
target return on capital (riskless discount rate) of 10%. The
management considers risk premium rate at 2 percent and 8
percent respectively, project X and project Y.
Year 1 2 3 4
Project X 400000 350000 250000 200000
Project Y 500000 400000 300000 200000
Level 5 Evaluating
6.
From the under mentioned facts, compute the NPV of the
two projects for the each of the possible cash flows, using
Sensitivity Analysis.
Particulars
Project X
('000)
Project
Y ('000)
Initial Cash
Outlay (t0)
Rs 40 Rs 40
Cash flow
Estimates
(t-1-15)
Worst 6 0
Most
Likely
8 8
Best 10 16
Required Rate
of Return
0.1 0.1
Economic Life
(in years)
5 15
Level 6 Creating
7
M/S Zenith Enterprises is considering a project with the
following cash flows:
Year
Cost of Plant
(Rs.)
Running Cost
(Rs.)
Savings
(Rs.)
0 (7000)
1 2000 6000
2 2500 7000
The Cost of Capital of firm is 8%. Measure the sensitivity of
the project to changes in the levels of plant value, costs and
savings (considering each factor at a time) such that the net
present value of the project becomes zero. What factor is the
most sensitive to affect the acceptability of the project?
Level 1 Remembering
8
Mr. Selva is considering two mutually exclusive project ?X?
and ?Y?. You are required to advise him about the
acceptability of the projects from the following information.
The cut-off rate may be assumed to be 15%.
Project X Project Y
Cost of the Investment 1,00,000 1,00,000
Forecast cash inflows per
annum for 5 years
Optimistic 60000 55000
Most likely 35000 30000
Pessimistic 20000 20000
Level 2 Understanding
9
A company is considering two mutually exclusive projects,
both require an initial cash outlay of Rs. 10,000 each and have
a life of 5 years. The company?s required rate of return 10%
and pays tax at 50 %. The project will be depreciated on a
straight-line basis. The before tax cash flows expected to be
generated by the project are as follows.
Before tax cash flows:
Year Project A Project B
1 4,000 5,000
2 4,000 5,000
3 4,000 2,000
4 4,000 5,000
5 4,000 5,000
Calculate for each project: (i) PBP (ii) NPV (iii) PI. Which
project should be accepted and why?
Level 3 Applying
10
Determine the payback period from the following cash flows
Year CFAT
0 100000
1 20000
2 30000
3 40000
4 50000
5 60000
Level 4 Analysing
11
How the principles of capital rationing are considered as best
evaluation technique under such circumstances?
Level 1 Remembering
12 What are the circumstances NPV & IRR differ? Level 2 Understanding
13
How would you select the investment projects under one-
period capital constraints?
Level 4 Analysing
14
X ltd has five projects. Details are given below. Rank the
five projects based on NPV and IRR. The discount rate is
10%.
Project
Investment
Outlay (Rs.)
Expected
Annual Cash
Inflow (Rs.)
Project
life(years)
M
50,000 18,000 10
N 1,00,000 50,000 4
O 1,20,000 30,000 8
P 1,50,000 40,000 16
Q 2,00,000 30,000 25
Level 1 Remembering
PART - C
S.NO QUESTIONS
1
X ltd is considering the purchase of a new plant requiring a cash outlay of Rs.20,000. The plant is
expected to have a useful life of 2 years without any salvage value. The cash flows and their associated
probabilities for the two years are as follows: Presuming that 10% is the cost of capital you plot the above
data in the form of a decision tree and suggest whether the project should be taken up or not.
First Year Cash Flow Probability
I 8000 0.3
II 11000 0.4
III 15000 0.3
Second Year, if First year Cash Flow is 8000
Cash Flow Probability
I 4000 0.2
II 10000 0.6
III 15000 0.2
Second Year, if First year Cash Flow is 11000
Cash Flow Probability
I 13000 0.3
II 15000 0.4
III 16000 0.3
Second Year, if First year Cash Flow is 15000
Cash Flow Probability
I 16000 0.1
II 20000 0.8
III 24000 0.1
2
A firm has an investment proposal, requiring an outlay of Rs.40,000. The investment proposal is expected
to have 2 years economical life with no salvage value. In year I, there is a 0.4 probability that cash inflow
after tax will be Rs.25000 and 0.6 probabilities that cash inflow after tax will be Rs.30,000. The
probability assigned to cash inflow after tax for the year II are as follows: The firm uses a 10% discount
rate for this type of investment. Construct a decision tree for the proposed investment project.
Cash Inflow Year I Rs.25000 Rs.30000
Cash Inflow Year II
with probabilities
Rs.12000
Rs.16000
Rs.22000
0.2
0.3
0.5
Rs.20000
Rs.25000
Rs.30000
0.4
0.5
0.1
3
What is Profitability Index? Which is a superior ranking criterion, profitability index or NPV?
4
Do you think Capital rationing lead to sub-optimal investment decision? Explain
UNIT ? III ? STRATEGIC ANALYSIS OF SELECTED INVESTMENT
SYLLABUS: Lease financing ? Lease Vs Buy decision ? Hire Purchase and installment decision ? Hire
Purchase Vs Lease Decision ? Mergers and acquisition ? Cash Vs Equity for mergers.
PART- A
S.NO QUESTIONS BT LEVEL COMPETENCE
1 Define Leasing. Level 1 Remembering
2
Compare Lease and Buy decision.
Level 2 Understanding
3
Identify the features of Lease financing.
Level 3 Applying
4 Classify the different types of Lease. Level 4 Analysing
5
Give the objectives of Lease financing.
Level 5 Evaluating
6 Can you assess the importance of buying decision? Level 6 Creating
7
Define Hire purchase?
Level 1 Remembering
8 Distinguish Hire purchase and Installment decision. Level 2 Understanding
9
Identify the different types of Hire purchase agreements.
Level 3 Applying
10 Summarize the concept of Installment decision. Level 4 Analysing
11
Give the characteristic features of hire purchase.
Level 5 Evaluating
12
Can you interpret about the parties involved in hire
purchase?
Level 6 Creating
13 Define Merger. Level 1 Remembering
14
Distinguish between Merger & Acquisition.
Level 2 Understanding
15
Identify the features of Merger.
Level 3 Applying
16
Classify the types of Merger.
Level 4 Analysing
17
What is tripartite lease?
Level 1 Remembering
18 Compare Cash and Stock payment Merger. Level 2 Understanding
19 What is meant by reverse Merger & Acquisition? Level 1 Remembering
20
What are the objectives & benefits of Merger &
Acquisition?
Level 1 Remembering
PART- B
S.NO QUESTIONS BT LEVEL COMPETENCE
1
What are the salient features of a leasing arrangement? How
would you choose between leasing and buying?
Level 1 Remembering
2 Explain the different types of Leasing and its features. Level 2 Understanding
3
Identify the steps considered while making investment
decision of leasing or buying.
Level 3 Applying
4 Critically analyse the various types of investment decisions. Level 4 Analysing
5
Discuss the essential elements advantages for lessor and
lessee in leasing.
Level 5 Evaluating
6.
(i)Interpret the tax considerations on Hire purchasing
decision.
(ii)What are the pros and cons of Hire purchasing?
Level 6 Creating
7
(i)What are the methods of Hire Purchase system?
(ii)What do you understand by Installment Purchase
system? Elaborate its features.
Level 1 Remembering
8 Distinguish between leasing and Hire purchasing. Level 2 Understanding
9
Describe the of Leasing.
Level 3 Applying
10
Evaluate the guidelines followed by banks in Hire purchase
.
Level 4 Analysing
11 Highlight the real motives of mergers and acquisitions. Level 1 Remembering
12
Elucidate the different types of Merger. Also explain
important reasons for mergers.
Level 2 Understanding
13
(i) Evaluate the payment methods in M&A.
(ii)What are the benefits of stock payment merger?
Level 4 Analysing
14
Describe the various steps involved in a Merger and the
strategies involved in handling it.
Level 1 Remembering
PART - C
S.NO QUESTIONS
1
You work for a nuclear research laboratory that is contemplating leasing a diagnostic scanner (leasing is a
very common practice with expensive, high-tech equipment). The scanner costs Rs.10,00,000 and it
qualifies for a 30 percent CCA rate. Because of radiation contamination, it is valueless in four years. You
can lease it for Rs.3,00,000 per year for four years. Assume that the tax rate is 40 percent. You can
borrow at 8 percent pretax. Should you lease or buy?
2
Sunshine limited has an equity capital 6000 shares of Rs 100 each. The company plans to raise Rs400000
for expansion and modernization. The following alternatives are under consideration.
a) Issue of common stock
b) Issue of common stock for Rs 200000 and 10% debt for Rs 200000.
c) Issue of 10 % debt.
d) Issue of 10% preference shares of Rs 200000 and 10% debt for Rs 200000
The company?s existing earnings before interest and taxes are Rs 400000. The rate of corporate tax is
50%. Determine the earnings per share in each plan and give your comment.
3
Gama Fertilizers Company is taking over Theta Petrochemical Company. The shareholders of Theta
would receive 0.8 shares of Gama for each share held by them. The merger is not expected to yield in
economies of scale & operating synergy. The relevant data for the two companies is as follow:
Particulars Gama Theta
Net Sales (Rs Crore) 335 118
Profit after tax (Rs Crore) 58 12
Number of share (Crore) 12 3
Earnings per share (Rs) 4.83 4
Market value per share (Rs) 30 20
Price-earnings ratio 6.21 5
For the combined company (after merger), you are required to calculate
A. EPS,
B. P/E Ratio,
C. Market value per share,
D. Number of shares and
E. Total market capitalization.
F. Also calculate the premium paid by Gama to the shareholders of Theta.
4
A company is considering the lease of an equipment which has a purchase price of Rs.3,50,000. The
equipment has an estimated economic life of 5 years. As per the Income Tax Rule, a written down
depreciation at 25 per cent is allowed. The lease rentals per year are Rs.1,20,000. Assume that the
company?s marginal corporate tax rate is 50 per cent. If the before-tax borrowing rate for the company is
16 per cent, should the company lease the equipment? Ignore tax shield on depreciation after 5 years.
UNIT ? IV ? FINANCING DECISIONS
SYLLABUS: Capital Structure ? Capital structure theories ? Capital structure Planning in Practice
PART- A
S.NO QUESTIONS BT LEVEL COMPETENCE
1 Define Financial Leverage. Level 1 Remembering
2 Compare operating and financial leverage. Level 2 Understanding
3 Identify the bases of determining capital structure. Level 3 Applying
4 Classify the different forms of Capital Structure. Level 4 Analysing
5
Give the objectives of composite leverage.
Level 5 Evaluating
6
Can you assess the importance of arbitrage pricing in capital
structure theory?
Level 6 Creating
7
State the elements of Capital structure.
Level 1 Remembering
8 Distinguish NI and NOI approaches of Capital structure. Level 2 Understanding
9
Identify the different components of capital structure.
Level 3 Applying
10
Summarize the concept of Trading on equity.
Level 4 Analysing
11
Give the characteristic features of debt equity ratio and
interest coverage ratio.
Level 5 Evaluating
12
Can you interpret the existence of operating leverage in a
firm?s capital structure?
Level 6 Creating
13 What do you understand by EBIT? Level 1 Remembering
14
Write a note on EBIT-EPS analysis.
Level 2 Understanding
15 State the assumptions of MM approach. Level 3 Applying
16 Classify the types of Capital structure theories. Level 4 Analysing
17 What are the various forms of Cost based theories? Level 1 Remembering
18 Compare and Contrast arguments on MM approach. Level 2 Understanding
19
What is meant by Pecking order theory?
Level 1 Remembering
20
What do you understand by indifference point?
Level 1 Remembering
PART- B
S.NO QUESTIONS BT LEVEL COMPETENCE
1
What do you understand by Leverage? What are the factors
influencing leverage?
Level 1 Remembering
2
Explain the assumptions and three stages of traditional
approach in Capital Structure Theory.
Level 2 Understanding
3
Identify the computation of Indifference point in EBIT-EPS
analysis. Give examples.
Level 3 Applying
4
Critically analyze the assumptions and implications of NI and
NOI approach.
Level 4 Analysing
5
Discuss about the MM hypothesis on optimum capital
structure.
Level 5 Evaluating
6.
Sales = 1.00.000 units @ Rs.2 per unit
Variable Cost =0.65p
Fixed Cost= Rs.65,000
Interest Charges = Rs.15,000
Dividend Charges = Rs.6000
Tax rate = 35%
No. of Equity Shares = 30000
Calculate
A. EPS
B. What happens when sales increases by 15%
C. Operating Leverage, Financial Leverage & Combined
Leverage
Level 6 Creating
7
List the most critical factors of the determination of the
capital structure.
Level 1 Remembering
8
X Ltd has estimated that for a new product the BEP is 2000
units. If the products are sold at Rs.14 per unit. Variable Cost
amounts to Rs.9 per unit. Calculate Operating leverage for a
sales volume of 2500 units & 3000 units. What do you infer
from data at sales volume of 2500 units and 3000 units?
Level 2 Understanding
9
Calculate the Indifference point considering the following:
Tax rate = 55%
Market price of the share is Rs.100
a) Rs.20,00,000 through equity shares and Rs.10,00,000 @
10% debentures
b) Rs.10,00,000 @ 12% preference shares, Rs.8,00,000 @
10% debentures & Rs.12,00,000 through equity shares.
Level 3 Applying
10
Calculate Indifference point for the following financial
plans:
a) Entire amount through equity shares Rs.30,00,000
b) Rs.15,00,000@10% debentures, Rs.15,00,000 through
equity shares.
c) Rs.10,00,000@12% preference shares & Rs.20,00,000
through equity shares.
Tax rate is 55%, Market Price is Rs.100.
Level 4 Analysing
11
Define Capitalization. Explain about Under Capitalization
and Over Capitalization.
Level 1 Remembering
12
Calculate Financial leverage & Operating Leverage under
A& B for Financial plans 1 & 2. Installed capacity is
1000units. Actual Capacity is 800 units. Selling price per
unit is Rs.20, Variable cost per unit is Rs.15, Fixed cost is A)
Rs.800 B) Rs.500
Particulars Plan 1 Plan 2
Equity Capital Rs.5000 Rs.7000
Debentures Rs.5000 Rs.2000
Cost of Debt 10%
Market Price Rs.10
Tax rate 50%
Level 2 Understanding
13
A firm sells its products for Rs.200 per unit, has variable
operating cost of Rs.110 per unit and fixed operating cost of
Rs.50,000 per year. Show the various levels of EBIT that
would result from sale of (i) 800 units (ii)1800 units
(iii)3500 units
Level 4 Analysing
14
Sales = Rs.10,00,00
Variable Cost = 40%
Fixed Cost = Rs.2,00,000
10% Debentures @ Rs.10,00,00
Tax rate = 40%
12% Preference Share Capital @ Rs.10,00,000
Equity Shares = 1,00,000 shares
Calculate
(i)EPS
(ii) What happens if sales increase by 40%
(iii)Operating Leverage, Financial Leverage & Combined
Leverage
Level 1 Remembering
PART - C
S.NO QUESTIONS
1
Does the Financial leverage always increase the earnings per share ? illustrate your answers.
2
The firm?s existing financial structure is as follows:
Debentures ? Nil
Preference Shares ? Nil
Equity Share Capital ? Rs.10,00,000
Number of Equity shares ? 10,000
Tax Rate ? 40%
Present Market Price ? Rs 100.
The Company needs an additional capital of Rs.10,00,000. The company has the following financial
plans:
(i) Entire amount through equity shares
(ii) 50% through equity shares & 50% through 5% debentures
(iii) Entire amount through 6% debentures
FirstRanker.com - FirstRanker's Choice
?
DEPARTMENT OF MANAGEMENT STUDIES
QUESTION BANK
III SEMESTER
BA5013 ? STRATEGIC INVESTMENT AND FINANCING DECISIONS
Regulation ? 2017
Academic Year 2019 - 2020
Prepared by
Mrs. A. UmaDevi ? Asst. Professor
Mr. K. Suresh ? Asst. Professor
? .
DEPARTMENT OFMANAGEMENT STUDIES
QUESTION BANK
SUBJECT : BA5013 ? STRATEGIC INVESTMENT AND FINANCING DECISIONS
SEM / YEAR : III Semester / II Year
UNIT ? I ? INVESTMENT DECISIONS
SYLLABUS: Project Investment Management Vs Project Management ? Introduction to profitable
projects ? evaluation of Investment opportunities ? Investment decisions under conditions of uncertainty
? Risk analysis in Investment decision ? Types of investments and disinvestments.
PART- A
S.NO QUESTIONS BT LEVEL COMPETENCE
1
What is Investment Management?
Level 1 Remembering
2
Compare Project Investment management and Project
Management.
Level 2 Understanding
3
Identify the features of Investment decisions.
Level 3 Applying
4
Classify the different ways of evaluating investment
opportunities.
Level 4 Analysing
5
Give the objectives of profitable project.
Level 5 Evaluating
6
Can you assess the importance of discounted cash flow method?
Level 6 Creating
7
What is uncertainty in financial investment?
Level 1 Remembering
8
Distinguish RAD and CE.
Level 2 Understanding
9
Identify the different types of Investment.
Level 3 Applying
10
Summarize the concept of Capital Budgeting.
Level 4 Analysing
11
Give five qualities required for successful investing.
Level 5 Evaluating
12
Interpret the objectives of Investment.
Level 6 Creating
13
Define Project Management.
Level 1 Remembering
14
Distinguish between systematic & unsystematic risk.
Level 2 Understanding
15
How is Disinvestment undertaken?
Level 3 Applying
16
Classify the types of Disinvestments.
Level 4 Analysing
17
What are the principal methods employed for ascertaining the
profitability of capital expenditure project?
Level 1 Remembering
18
Differentiate Investment and Disinvestment.
Level 2 Understanding
19
Explain the term ?Project Profitability? in investment
management.
Level 1 Remembering
20
How do you measure risk by means of standard deviation &
Coefficient of Variance?
Level 1 Remembering
PART- B
S.NO QUESTIONS BT LEVEL COMPETENCE
1
What key issues are examined while making a major
Investment decision?
Level 1 Remembering
2 Identify the different types of investments and its features. Level 2 Understanding
3 Explain the different kinds of project risks. Level 3 Applying
4
i) Discuss the steps involved in Simulation analysis. (5
marks)
Level 4 Analysing
ii) What are the pros and cons of simulation analysis? (8
marks)
5
Critically examine how you would assess the profitability of
a project.
Level 5 Evaluating
6.
Interpret Sensitivity analysis method of investment analysis
with an example.
Level 6 Creating
7
How will you analyze the risk before taking any investment
decision?
Level 1 Remembering
8 Discuss the disinvestment methods available for corporates. Level 2 Understanding
9 Describe the advantages of investments. Level 3 Applying
10 Explain the evaluation of Investment Opportunities. Level 4 Analysing
11
?Risk analysis is an essential feature of investment decision
making process?. What are the major risk factors and how
will you control them?
Level 1 Remembering
12
Define Capital budgeting. Explain briefly the various risk
management techniques in capital budgeting with
illustrations.
Level 2 Understanding
13
X company is considering two projects M&N, each of which
require an initial outlay of Rs.50 lakhs. The expected cash
inflows from these projects are:
Year Project M Project N
1 12 37
2 18 24
3 33 19
4 36 12
1. What is the PBP for each of the project?
2. If the two projects are mutually exclusive and the cost of
capital is 15%. Which project should the firm invest in?
3. If cost of capital is 14%, What is the modified IRR of
each project?
Level 4 Analysing
14
From the following information, ascertain which project
should be selected on the basis of standard deviation.
Project X Project Y
Cash
Inflow
Probability
Cash
Inflow
Probability
3200 0.2 2400 0.1
5500 0.3 7400 0.4
7400 0.3 8800 0.4
8900 0.2 5500 0.1
Level 1 Remembering
PART - C
S.NO QUESTIONS
1
Capital expenditure decisions are by far the most important decisions in the field of management. Illustrate
2
There are 3 securities X, Y, and Z. The returns are given as below; Select the securities based on risk and
return. Calculate average returns, variance and standard deviation.
Security X 30 20 22 33 15
Security Y -20 10 20 10 20
Security Z -20 -10 -5 10 30
3
Is there any difference between risk and uncertainty? Elucidate about capital budgeting decisions in an
organization.
4
How can Utility theory be incorporated in the capital budgeting decision to account for the risk preferences
of the decision maker?
UNIT ? II ? CRITICAL ANALYSIS OF APPRAISAL TECHNIQUES
SYLLABUS: Significance of Information and data bank in project selections ? Investment decisions
under capital constraints ? capital rationing, Portfolio ? Portfolio risk and diversified projects.
PART- A
S.NO QUESTIONS BT LEVEL COMPETENCE
1
Define Capital rationing.
Level 1 Remembering
2 Compare capital constraint on risk analysis. Level 2 Understanding
3
Identify the different steps in decision tree.
Level 3 Applying
4 Classify the different ways of evaluating project selection. Level 4 Analysing
5 Give the objectives of data bank in project selection. Level 5 Evaluating
6
Can you assess the importance of data bank in project
selection?
Level 6 Creating
7
What is meant by Capital constraint?
Level 1 Remembering
8
Draw a decision tree & illustrate.
Level 2 Understanding
9
Identify the steps in Simulation analysis.
Level 3 Applying
10 What is Capital constraint? Level 4 Analysing
11
Give a note on risky investments.
Level 5 Evaluating
12
Interpret the objectives of project selection.
Level 6 Creating
13 Define Capital rationing. Level 1 Remembering
14
Compare portfolio risk & diversification.
Level 2 Understanding
15
How is Portfolio diversification undertaken?
Level 3 Applying
16 Identify the features of diversification. Level 4 Analysing
17
What are the advantages & disadvantages of decision tree
approach?
Level 1 Remembering
18
Write down the need for portfolio diversification.
Level 2 Understanding
19
What is portfolio risk?
Level 1 Remembering
20 How do you measure risk by means of Sensitivity analysis? Level 1 Remembering
PART- B
S.NO QUESTIONS BT LEVEL COMPETENCE
1
Discuss about examination of the secondary information for
reliability and relevance for the consideration purpose.
Level 1 Remembering
2
Narrate the various techniques used to construct a good
portfolio.
Level 2 Understanding
3
Elucidate the various techniques available for incorporating
risk factor in capital investment proposals with practical
examples.
Level 3 Applying
4 Explain the programming approach to capital rationing. Level 4 Analysing
5
From the following information state which project is
preferred? Two alternative projects are available (project X
and project Y) each costing Rs.10,00,000. The company has a
target return on capital (riskless discount rate) of 10%. The
management considers risk premium rate at 2 percent and 8
percent respectively, project X and project Y.
Year 1 2 3 4
Project X 400000 350000 250000 200000
Project Y 500000 400000 300000 200000
Level 5 Evaluating
6.
From the under mentioned facts, compute the NPV of the
two projects for the each of the possible cash flows, using
Sensitivity Analysis.
Particulars
Project X
('000)
Project
Y ('000)
Initial Cash
Outlay (t0)
Rs 40 Rs 40
Cash flow
Estimates
(t-1-15)
Worst 6 0
Most
Likely
8 8
Best 10 16
Required Rate
of Return
0.1 0.1
Economic Life
(in years)
5 15
Level 6 Creating
7
M/S Zenith Enterprises is considering a project with the
following cash flows:
Year
Cost of Plant
(Rs.)
Running Cost
(Rs.)
Savings
(Rs.)
0 (7000)
1 2000 6000
2 2500 7000
The Cost of Capital of firm is 8%. Measure the sensitivity of
the project to changes in the levels of plant value, costs and
savings (considering each factor at a time) such that the net
present value of the project becomes zero. What factor is the
most sensitive to affect the acceptability of the project?
Level 1 Remembering
8
Mr. Selva is considering two mutually exclusive project ?X?
and ?Y?. You are required to advise him about the
acceptability of the projects from the following information.
The cut-off rate may be assumed to be 15%.
Project X Project Y
Cost of the Investment 1,00,000 1,00,000
Forecast cash inflows per
annum for 5 years
Optimistic 60000 55000
Most likely 35000 30000
Pessimistic 20000 20000
Level 2 Understanding
9
A company is considering two mutually exclusive projects,
both require an initial cash outlay of Rs. 10,000 each and have
a life of 5 years. The company?s required rate of return 10%
and pays tax at 50 %. The project will be depreciated on a
straight-line basis. The before tax cash flows expected to be
generated by the project are as follows.
Before tax cash flows:
Year Project A Project B
1 4,000 5,000
2 4,000 5,000
3 4,000 2,000
4 4,000 5,000
5 4,000 5,000
Calculate for each project: (i) PBP (ii) NPV (iii) PI. Which
project should be accepted and why?
Level 3 Applying
10
Determine the payback period from the following cash flows
Year CFAT
0 100000
1 20000
2 30000
3 40000
4 50000
5 60000
Level 4 Analysing
11
How the principles of capital rationing are considered as best
evaluation technique under such circumstances?
Level 1 Remembering
12 What are the circumstances NPV & IRR differ? Level 2 Understanding
13
How would you select the investment projects under one-
period capital constraints?
Level 4 Analysing
14
X ltd has five projects. Details are given below. Rank the
five projects based on NPV and IRR. The discount rate is
10%.
Project
Investment
Outlay (Rs.)
Expected
Annual Cash
Inflow (Rs.)
Project
life(years)
M
50,000 18,000 10
N 1,00,000 50,000 4
O 1,20,000 30,000 8
P 1,50,000 40,000 16
Q 2,00,000 30,000 25
Level 1 Remembering
PART - C
S.NO QUESTIONS
1
X ltd is considering the purchase of a new plant requiring a cash outlay of Rs.20,000. The plant is
expected to have a useful life of 2 years without any salvage value. The cash flows and their associated
probabilities for the two years are as follows: Presuming that 10% is the cost of capital you plot the above
data in the form of a decision tree and suggest whether the project should be taken up or not.
First Year Cash Flow Probability
I 8000 0.3
II 11000 0.4
III 15000 0.3
Second Year, if First year Cash Flow is 8000
Cash Flow Probability
I 4000 0.2
II 10000 0.6
III 15000 0.2
Second Year, if First year Cash Flow is 11000
Cash Flow Probability
I 13000 0.3
II 15000 0.4
III 16000 0.3
Second Year, if First year Cash Flow is 15000
Cash Flow Probability
I 16000 0.1
II 20000 0.8
III 24000 0.1
2
A firm has an investment proposal, requiring an outlay of Rs.40,000. The investment proposal is expected
to have 2 years economical life with no salvage value. In year I, there is a 0.4 probability that cash inflow
after tax will be Rs.25000 and 0.6 probabilities that cash inflow after tax will be Rs.30,000. The
probability assigned to cash inflow after tax for the year II are as follows: The firm uses a 10% discount
rate for this type of investment. Construct a decision tree for the proposed investment project.
Cash Inflow Year I Rs.25000 Rs.30000
Cash Inflow Year II
with probabilities
Rs.12000
Rs.16000
Rs.22000
0.2
0.3
0.5
Rs.20000
Rs.25000
Rs.30000
0.4
0.5
0.1
3
What is Profitability Index? Which is a superior ranking criterion, profitability index or NPV?
4
Do you think Capital rationing lead to sub-optimal investment decision? Explain
UNIT ? III ? STRATEGIC ANALYSIS OF SELECTED INVESTMENT
SYLLABUS: Lease financing ? Lease Vs Buy decision ? Hire Purchase and installment decision ? Hire
Purchase Vs Lease Decision ? Mergers and acquisition ? Cash Vs Equity for mergers.
PART- A
S.NO QUESTIONS BT LEVEL COMPETENCE
1 Define Leasing. Level 1 Remembering
2
Compare Lease and Buy decision.
Level 2 Understanding
3
Identify the features of Lease financing.
Level 3 Applying
4 Classify the different types of Lease. Level 4 Analysing
5
Give the objectives of Lease financing.
Level 5 Evaluating
6 Can you assess the importance of buying decision? Level 6 Creating
7
Define Hire purchase?
Level 1 Remembering
8 Distinguish Hire purchase and Installment decision. Level 2 Understanding
9
Identify the different types of Hire purchase agreements.
Level 3 Applying
10 Summarize the concept of Installment decision. Level 4 Analysing
11
Give the characteristic features of hire purchase.
Level 5 Evaluating
12
Can you interpret about the parties involved in hire
purchase?
Level 6 Creating
13 Define Merger. Level 1 Remembering
14
Distinguish between Merger & Acquisition.
Level 2 Understanding
15
Identify the features of Merger.
Level 3 Applying
16
Classify the types of Merger.
Level 4 Analysing
17
What is tripartite lease?
Level 1 Remembering
18 Compare Cash and Stock payment Merger. Level 2 Understanding
19 What is meant by reverse Merger & Acquisition? Level 1 Remembering
20
What are the objectives & benefits of Merger &
Acquisition?
Level 1 Remembering
PART- B
S.NO QUESTIONS BT LEVEL COMPETENCE
1
What are the salient features of a leasing arrangement? How
would you choose between leasing and buying?
Level 1 Remembering
2 Explain the different types of Leasing and its features. Level 2 Understanding
3
Identify the steps considered while making investment
decision of leasing or buying.
Level 3 Applying
4 Critically analyse the various types of investment decisions. Level 4 Analysing
5
Discuss the essential elements advantages for lessor and
lessee in leasing.
Level 5 Evaluating
6.
(i)Interpret the tax considerations on Hire purchasing
decision.
(ii)What are the pros and cons of Hire purchasing?
Level 6 Creating
7
(i)What are the methods of Hire Purchase system?
(ii)What do you understand by Installment Purchase
system? Elaborate its features.
Level 1 Remembering
8 Distinguish between leasing and Hire purchasing. Level 2 Understanding
9
Describe the of Leasing.
Level 3 Applying
10
Evaluate the guidelines followed by banks in Hire purchase
.
Level 4 Analysing
11 Highlight the real motives of mergers and acquisitions. Level 1 Remembering
12
Elucidate the different types of Merger. Also explain
important reasons for mergers.
Level 2 Understanding
13
(i) Evaluate the payment methods in M&A.
(ii)What are the benefits of stock payment merger?
Level 4 Analysing
14
Describe the various steps involved in a Merger and the
strategies involved in handling it.
Level 1 Remembering
PART - C
S.NO QUESTIONS
1
You work for a nuclear research laboratory that is contemplating leasing a diagnostic scanner (leasing is a
very common practice with expensive, high-tech equipment). The scanner costs Rs.10,00,000 and it
qualifies for a 30 percent CCA rate. Because of radiation contamination, it is valueless in four years. You
can lease it for Rs.3,00,000 per year for four years. Assume that the tax rate is 40 percent. You can
borrow at 8 percent pretax. Should you lease or buy?
2
Sunshine limited has an equity capital 6000 shares of Rs 100 each. The company plans to raise Rs400000
for expansion and modernization. The following alternatives are under consideration.
a) Issue of common stock
b) Issue of common stock for Rs 200000 and 10% debt for Rs 200000.
c) Issue of 10 % debt.
d) Issue of 10% preference shares of Rs 200000 and 10% debt for Rs 200000
The company?s existing earnings before interest and taxes are Rs 400000. The rate of corporate tax is
50%. Determine the earnings per share in each plan and give your comment.
3
Gama Fertilizers Company is taking over Theta Petrochemical Company. The shareholders of Theta
would receive 0.8 shares of Gama for each share held by them. The merger is not expected to yield in
economies of scale & operating synergy. The relevant data for the two companies is as follow:
Particulars Gama Theta
Net Sales (Rs Crore) 335 118
Profit after tax (Rs Crore) 58 12
Number of share (Crore) 12 3
Earnings per share (Rs) 4.83 4
Market value per share (Rs) 30 20
Price-earnings ratio 6.21 5
For the combined company (after merger), you are required to calculate
A. EPS,
B. P/E Ratio,
C. Market value per share,
D. Number of shares and
E. Total market capitalization.
F. Also calculate the premium paid by Gama to the shareholders of Theta.
4
A company is considering the lease of an equipment which has a purchase price of Rs.3,50,000. The
equipment has an estimated economic life of 5 years. As per the Income Tax Rule, a written down
depreciation at 25 per cent is allowed. The lease rentals per year are Rs.1,20,000. Assume that the
company?s marginal corporate tax rate is 50 per cent. If the before-tax borrowing rate for the company is
16 per cent, should the company lease the equipment? Ignore tax shield on depreciation after 5 years.
UNIT ? IV ? FINANCING DECISIONS
SYLLABUS: Capital Structure ? Capital structure theories ? Capital structure Planning in Practice
PART- A
S.NO QUESTIONS BT LEVEL COMPETENCE
1 Define Financial Leverage. Level 1 Remembering
2 Compare operating and financial leverage. Level 2 Understanding
3 Identify the bases of determining capital structure. Level 3 Applying
4 Classify the different forms of Capital Structure. Level 4 Analysing
5
Give the objectives of composite leverage.
Level 5 Evaluating
6
Can you assess the importance of arbitrage pricing in capital
structure theory?
Level 6 Creating
7
State the elements of Capital structure.
Level 1 Remembering
8 Distinguish NI and NOI approaches of Capital structure. Level 2 Understanding
9
Identify the different components of capital structure.
Level 3 Applying
10
Summarize the concept of Trading on equity.
Level 4 Analysing
11
Give the characteristic features of debt equity ratio and
interest coverage ratio.
Level 5 Evaluating
12
Can you interpret the existence of operating leverage in a
firm?s capital structure?
Level 6 Creating
13 What do you understand by EBIT? Level 1 Remembering
14
Write a note on EBIT-EPS analysis.
Level 2 Understanding
15 State the assumptions of MM approach. Level 3 Applying
16 Classify the types of Capital structure theories. Level 4 Analysing
17 What are the various forms of Cost based theories? Level 1 Remembering
18 Compare and Contrast arguments on MM approach. Level 2 Understanding
19
What is meant by Pecking order theory?
Level 1 Remembering
20
What do you understand by indifference point?
Level 1 Remembering
PART- B
S.NO QUESTIONS BT LEVEL COMPETENCE
1
What do you understand by Leverage? What are the factors
influencing leverage?
Level 1 Remembering
2
Explain the assumptions and three stages of traditional
approach in Capital Structure Theory.
Level 2 Understanding
3
Identify the computation of Indifference point in EBIT-EPS
analysis. Give examples.
Level 3 Applying
4
Critically analyze the assumptions and implications of NI and
NOI approach.
Level 4 Analysing
5
Discuss about the MM hypothesis on optimum capital
structure.
Level 5 Evaluating
6.
Sales = 1.00.000 units @ Rs.2 per unit
Variable Cost =0.65p
Fixed Cost= Rs.65,000
Interest Charges = Rs.15,000
Dividend Charges = Rs.6000
Tax rate = 35%
No. of Equity Shares = 30000
Calculate
A. EPS
B. What happens when sales increases by 15%
C. Operating Leverage, Financial Leverage & Combined
Leverage
Level 6 Creating
7
List the most critical factors of the determination of the
capital structure.
Level 1 Remembering
8
X Ltd has estimated that for a new product the BEP is 2000
units. If the products are sold at Rs.14 per unit. Variable Cost
amounts to Rs.9 per unit. Calculate Operating leverage for a
sales volume of 2500 units & 3000 units. What do you infer
from data at sales volume of 2500 units and 3000 units?
Level 2 Understanding
9
Calculate the Indifference point considering the following:
Tax rate = 55%
Market price of the share is Rs.100
a) Rs.20,00,000 through equity shares and Rs.10,00,000 @
10% debentures
b) Rs.10,00,000 @ 12% preference shares, Rs.8,00,000 @
10% debentures & Rs.12,00,000 through equity shares.
Level 3 Applying
10
Calculate Indifference point for the following financial
plans:
a) Entire amount through equity shares Rs.30,00,000
b) Rs.15,00,000@10% debentures, Rs.15,00,000 through
equity shares.
c) Rs.10,00,000@12% preference shares & Rs.20,00,000
through equity shares.
Tax rate is 55%, Market Price is Rs.100.
Level 4 Analysing
11
Define Capitalization. Explain about Under Capitalization
and Over Capitalization.
Level 1 Remembering
12
Calculate Financial leverage & Operating Leverage under
A& B for Financial plans 1 & 2. Installed capacity is
1000units. Actual Capacity is 800 units. Selling price per
unit is Rs.20, Variable cost per unit is Rs.15, Fixed cost is A)
Rs.800 B) Rs.500
Particulars Plan 1 Plan 2
Equity Capital Rs.5000 Rs.7000
Debentures Rs.5000 Rs.2000
Cost of Debt 10%
Market Price Rs.10
Tax rate 50%
Level 2 Understanding
13
A firm sells its products for Rs.200 per unit, has variable
operating cost of Rs.110 per unit and fixed operating cost of
Rs.50,000 per year. Show the various levels of EBIT that
would result from sale of (i) 800 units (ii)1800 units
(iii)3500 units
Level 4 Analysing
14
Sales = Rs.10,00,00
Variable Cost = 40%
Fixed Cost = Rs.2,00,000
10% Debentures @ Rs.10,00,00
Tax rate = 40%
12% Preference Share Capital @ Rs.10,00,000
Equity Shares = 1,00,000 shares
Calculate
(i)EPS
(ii) What happens if sales increase by 40%
(iii)Operating Leverage, Financial Leverage & Combined
Leverage
Level 1 Remembering
PART - C
S.NO QUESTIONS
1
Does the Financial leverage always increase the earnings per share ? illustrate your answers.
2
The firm?s existing financial structure is as follows:
Debentures ? Nil
Preference Shares ? Nil
Equity Share Capital ? Rs.10,00,000
Number of Equity shares ? 10,000
Tax Rate ? 40%
Present Market Price ? Rs 100.
The Company needs an additional capital of Rs.10,00,000. The company has the following financial
plans:
(i) Entire amount through equity shares
(ii) 50% through equity shares & 50% through 5% debentures
(iii) Entire amount through 6% debentures
(iv) 50% through equity shares, 30% through 5% debentures, 20% through preference shares @ 7%
3
Analyze the financial plans & Choose the best one. The company has the following capital structure. Tax
rate is 40%, Rs.2,00,000 debentures @ 10%, Rs.3,00,000 preference shares @ 12%, Number of equities
1,00,000, EBIT is Rs.6,00,000. The Company needs a finance of Rs.10,00,000. The company has the
following plans:
(i) Entirely through debt @ 11%
(ii) Rs.5,00,000 debentures @ 10%, Rs.3.00,000 preference shares @12%, Rs.2,00,000 through
equity shares
(iii) Rs.10,00,000 Preference shares @13%
(iv) Rs.10,00,000 through Equity shares
The present market price per share is Rs. 100..
4
What is meant by financial flexibility? Is a flexible capital structure costly?
UNIT ? V ? FINANCIAL DISTRESS
SYLLABUS: Consequences, Issues, Bankruptcy, Settlements, Reorganization and Liquidation in
Bankruptcy
PART- A
S.NO QUESTIONS BT LEVEL COMPETENCE
1
What is Financial distress?
Level 1 Remembering
2 Compare insolvency and financial distress. Level 2 Understanding
3
Identify the causes for a firm suffering from financial
distress.
Level 3 Applying
4
Classify the different types of financial distress.
Level 4 Analysing
5
Give the characteristic features of flow based & value-based
insolvency.
Level 5 Evaluating
6
Can you assess the responses to financial distress?
Level 6 Creating
7 What is Bankruptcy? Level 1 Remembering
8 Compare Asset restructuring and Financial restructuring. Level 2 Understanding
9 Identify the costs involved in financial distress. Level 3 Applying
10 Can you assess the various forms of financial distress? Level 4 Analysing
11
Give the reasons for bankruptcy.
Level 5 Evaluating
12
Can you interpret the term Creditor under IBC 2016?
Level 6 Creating
FirstRanker.com - FirstRanker's Choice
?
DEPARTMENT OF MANAGEMENT STUDIES
QUESTION BANK
III SEMESTER
BA5013 ? STRATEGIC INVESTMENT AND FINANCING DECISIONS
Regulation ? 2017
Academic Year 2019 - 2020
Prepared by
Mrs. A. UmaDevi ? Asst. Professor
Mr. K. Suresh ? Asst. Professor
? .
DEPARTMENT OFMANAGEMENT STUDIES
QUESTION BANK
SUBJECT : BA5013 ? STRATEGIC INVESTMENT AND FINANCING DECISIONS
SEM / YEAR : III Semester / II Year
UNIT ? I ? INVESTMENT DECISIONS
SYLLABUS: Project Investment Management Vs Project Management ? Introduction to profitable
projects ? evaluation of Investment opportunities ? Investment decisions under conditions of uncertainty
? Risk analysis in Investment decision ? Types of investments and disinvestments.
PART- A
S.NO QUESTIONS BT LEVEL COMPETENCE
1
What is Investment Management?
Level 1 Remembering
2
Compare Project Investment management and Project
Management.
Level 2 Understanding
3
Identify the features of Investment decisions.
Level 3 Applying
4
Classify the different ways of evaluating investment
opportunities.
Level 4 Analysing
5
Give the objectives of profitable project.
Level 5 Evaluating
6
Can you assess the importance of discounted cash flow method?
Level 6 Creating
7
What is uncertainty in financial investment?
Level 1 Remembering
8
Distinguish RAD and CE.
Level 2 Understanding
9
Identify the different types of Investment.
Level 3 Applying
10
Summarize the concept of Capital Budgeting.
Level 4 Analysing
11
Give five qualities required for successful investing.
Level 5 Evaluating
12
Interpret the objectives of Investment.
Level 6 Creating
13
Define Project Management.
Level 1 Remembering
14
Distinguish between systematic & unsystematic risk.
Level 2 Understanding
15
How is Disinvestment undertaken?
Level 3 Applying
16
Classify the types of Disinvestments.
Level 4 Analysing
17
What are the principal methods employed for ascertaining the
profitability of capital expenditure project?
Level 1 Remembering
18
Differentiate Investment and Disinvestment.
Level 2 Understanding
19
Explain the term ?Project Profitability? in investment
management.
Level 1 Remembering
20
How do you measure risk by means of standard deviation &
Coefficient of Variance?
Level 1 Remembering
PART- B
S.NO QUESTIONS BT LEVEL COMPETENCE
1
What key issues are examined while making a major
Investment decision?
Level 1 Remembering
2 Identify the different types of investments and its features. Level 2 Understanding
3 Explain the different kinds of project risks. Level 3 Applying
4
i) Discuss the steps involved in Simulation analysis. (5
marks)
Level 4 Analysing
ii) What are the pros and cons of simulation analysis? (8
marks)
5
Critically examine how you would assess the profitability of
a project.
Level 5 Evaluating
6.
Interpret Sensitivity analysis method of investment analysis
with an example.
Level 6 Creating
7
How will you analyze the risk before taking any investment
decision?
Level 1 Remembering
8 Discuss the disinvestment methods available for corporates. Level 2 Understanding
9 Describe the advantages of investments. Level 3 Applying
10 Explain the evaluation of Investment Opportunities. Level 4 Analysing
11
?Risk analysis is an essential feature of investment decision
making process?. What are the major risk factors and how
will you control them?
Level 1 Remembering
12
Define Capital budgeting. Explain briefly the various risk
management techniques in capital budgeting with
illustrations.
Level 2 Understanding
13
X company is considering two projects M&N, each of which
require an initial outlay of Rs.50 lakhs. The expected cash
inflows from these projects are:
Year Project M Project N
1 12 37
2 18 24
3 33 19
4 36 12
1. What is the PBP for each of the project?
2. If the two projects are mutually exclusive and the cost of
capital is 15%. Which project should the firm invest in?
3. If cost of capital is 14%, What is the modified IRR of
each project?
Level 4 Analysing
14
From the following information, ascertain which project
should be selected on the basis of standard deviation.
Project X Project Y
Cash
Inflow
Probability
Cash
Inflow
Probability
3200 0.2 2400 0.1
5500 0.3 7400 0.4
7400 0.3 8800 0.4
8900 0.2 5500 0.1
Level 1 Remembering
PART - C
S.NO QUESTIONS
1
Capital expenditure decisions are by far the most important decisions in the field of management. Illustrate
2
There are 3 securities X, Y, and Z. The returns are given as below; Select the securities based on risk and
return. Calculate average returns, variance and standard deviation.
Security X 30 20 22 33 15
Security Y -20 10 20 10 20
Security Z -20 -10 -5 10 30
3
Is there any difference between risk and uncertainty? Elucidate about capital budgeting decisions in an
organization.
4
How can Utility theory be incorporated in the capital budgeting decision to account for the risk preferences
of the decision maker?
UNIT ? II ? CRITICAL ANALYSIS OF APPRAISAL TECHNIQUES
SYLLABUS: Significance of Information and data bank in project selections ? Investment decisions
under capital constraints ? capital rationing, Portfolio ? Portfolio risk and diversified projects.
PART- A
S.NO QUESTIONS BT LEVEL COMPETENCE
1
Define Capital rationing.
Level 1 Remembering
2 Compare capital constraint on risk analysis. Level 2 Understanding
3
Identify the different steps in decision tree.
Level 3 Applying
4 Classify the different ways of evaluating project selection. Level 4 Analysing
5 Give the objectives of data bank in project selection. Level 5 Evaluating
6
Can you assess the importance of data bank in project
selection?
Level 6 Creating
7
What is meant by Capital constraint?
Level 1 Remembering
8
Draw a decision tree & illustrate.
Level 2 Understanding
9
Identify the steps in Simulation analysis.
Level 3 Applying
10 What is Capital constraint? Level 4 Analysing
11
Give a note on risky investments.
Level 5 Evaluating
12
Interpret the objectives of project selection.
Level 6 Creating
13 Define Capital rationing. Level 1 Remembering
14
Compare portfolio risk & diversification.
Level 2 Understanding
15
How is Portfolio diversification undertaken?
Level 3 Applying
16 Identify the features of diversification. Level 4 Analysing
17
What are the advantages & disadvantages of decision tree
approach?
Level 1 Remembering
18
Write down the need for portfolio diversification.
Level 2 Understanding
19
What is portfolio risk?
Level 1 Remembering
20 How do you measure risk by means of Sensitivity analysis? Level 1 Remembering
PART- B
S.NO QUESTIONS BT LEVEL COMPETENCE
1
Discuss about examination of the secondary information for
reliability and relevance for the consideration purpose.
Level 1 Remembering
2
Narrate the various techniques used to construct a good
portfolio.
Level 2 Understanding
3
Elucidate the various techniques available for incorporating
risk factor in capital investment proposals with practical
examples.
Level 3 Applying
4 Explain the programming approach to capital rationing. Level 4 Analysing
5
From the following information state which project is
preferred? Two alternative projects are available (project X
and project Y) each costing Rs.10,00,000. The company has a
target return on capital (riskless discount rate) of 10%. The
management considers risk premium rate at 2 percent and 8
percent respectively, project X and project Y.
Year 1 2 3 4
Project X 400000 350000 250000 200000
Project Y 500000 400000 300000 200000
Level 5 Evaluating
6.
From the under mentioned facts, compute the NPV of the
two projects for the each of the possible cash flows, using
Sensitivity Analysis.
Particulars
Project X
('000)
Project
Y ('000)
Initial Cash
Outlay (t0)
Rs 40 Rs 40
Cash flow
Estimates
(t-1-15)
Worst 6 0
Most
Likely
8 8
Best 10 16
Required Rate
of Return
0.1 0.1
Economic Life
(in years)
5 15
Level 6 Creating
7
M/S Zenith Enterprises is considering a project with the
following cash flows:
Year
Cost of Plant
(Rs.)
Running Cost
(Rs.)
Savings
(Rs.)
0 (7000)
1 2000 6000
2 2500 7000
The Cost of Capital of firm is 8%. Measure the sensitivity of
the project to changes in the levels of plant value, costs and
savings (considering each factor at a time) such that the net
present value of the project becomes zero. What factor is the
most sensitive to affect the acceptability of the project?
Level 1 Remembering
8
Mr. Selva is considering two mutually exclusive project ?X?
and ?Y?. You are required to advise him about the
acceptability of the projects from the following information.
The cut-off rate may be assumed to be 15%.
Project X Project Y
Cost of the Investment 1,00,000 1,00,000
Forecast cash inflows per
annum for 5 years
Optimistic 60000 55000
Most likely 35000 30000
Pessimistic 20000 20000
Level 2 Understanding
9
A company is considering two mutually exclusive projects,
both require an initial cash outlay of Rs. 10,000 each and have
a life of 5 years. The company?s required rate of return 10%
and pays tax at 50 %. The project will be depreciated on a
straight-line basis. The before tax cash flows expected to be
generated by the project are as follows.
Before tax cash flows:
Year Project A Project B
1 4,000 5,000
2 4,000 5,000
3 4,000 2,000
4 4,000 5,000
5 4,000 5,000
Calculate for each project: (i) PBP (ii) NPV (iii) PI. Which
project should be accepted and why?
Level 3 Applying
10
Determine the payback period from the following cash flows
Year CFAT
0 100000
1 20000
2 30000
3 40000
4 50000
5 60000
Level 4 Analysing
11
How the principles of capital rationing are considered as best
evaluation technique under such circumstances?
Level 1 Remembering
12 What are the circumstances NPV & IRR differ? Level 2 Understanding
13
How would you select the investment projects under one-
period capital constraints?
Level 4 Analysing
14
X ltd has five projects. Details are given below. Rank the
five projects based on NPV and IRR. The discount rate is
10%.
Project
Investment
Outlay (Rs.)
Expected
Annual Cash
Inflow (Rs.)
Project
life(years)
M
50,000 18,000 10
N 1,00,000 50,000 4
O 1,20,000 30,000 8
P 1,50,000 40,000 16
Q 2,00,000 30,000 25
Level 1 Remembering
PART - C
S.NO QUESTIONS
1
X ltd is considering the purchase of a new plant requiring a cash outlay of Rs.20,000. The plant is
expected to have a useful life of 2 years without any salvage value. The cash flows and their associated
probabilities for the two years are as follows: Presuming that 10% is the cost of capital you plot the above
data in the form of a decision tree and suggest whether the project should be taken up or not.
First Year Cash Flow Probability
I 8000 0.3
II 11000 0.4
III 15000 0.3
Second Year, if First year Cash Flow is 8000
Cash Flow Probability
I 4000 0.2
II 10000 0.6
III 15000 0.2
Second Year, if First year Cash Flow is 11000
Cash Flow Probability
I 13000 0.3
II 15000 0.4
III 16000 0.3
Second Year, if First year Cash Flow is 15000
Cash Flow Probability
I 16000 0.1
II 20000 0.8
III 24000 0.1
2
A firm has an investment proposal, requiring an outlay of Rs.40,000. The investment proposal is expected
to have 2 years economical life with no salvage value. In year I, there is a 0.4 probability that cash inflow
after tax will be Rs.25000 and 0.6 probabilities that cash inflow after tax will be Rs.30,000. The
probability assigned to cash inflow after tax for the year II are as follows: The firm uses a 10% discount
rate for this type of investment. Construct a decision tree for the proposed investment project.
Cash Inflow Year I Rs.25000 Rs.30000
Cash Inflow Year II
with probabilities
Rs.12000
Rs.16000
Rs.22000
0.2
0.3
0.5
Rs.20000
Rs.25000
Rs.30000
0.4
0.5
0.1
3
What is Profitability Index? Which is a superior ranking criterion, profitability index or NPV?
4
Do you think Capital rationing lead to sub-optimal investment decision? Explain
UNIT ? III ? STRATEGIC ANALYSIS OF SELECTED INVESTMENT
SYLLABUS: Lease financing ? Lease Vs Buy decision ? Hire Purchase and installment decision ? Hire
Purchase Vs Lease Decision ? Mergers and acquisition ? Cash Vs Equity for mergers.
PART- A
S.NO QUESTIONS BT LEVEL COMPETENCE
1 Define Leasing. Level 1 Remembering
2
Compare Lease and Buy decision.
Level 2 Understanding
3
Identify the features of Lease financing.
Level 3 Applying
4 Classify the different types of Lease. Level 4 Analysing
5
Give the objectives of Lease financing.
Level 5 Evaluating
6 Can you assess the importance of buying decision? Level 6 Creating
7
Define Hire purchase?
Level 1 Remembering
8 Distinguish Hire purchase and Installment decision. Level 2 Understanding
9
Identify the different types of Hire purchase agreements.
Level 3 Applying
10 Summarize the concept of Installment decision. Level 4 Analysing
11
Give the characteristic features of hire purchase.
Level 5 Evaluating
12
Can you interpret about the parties involved in hire
purchase?
Level 6 Creating
13 Define Merger. Level 1 Remembering
14
Distinguish between Merger & Acquisition.
Level 2 Understanding
15
Identify the features of Merger.
Level 3 Applying
16
Classify the types of Merger.
Level 4 Analysing
17
What is tripartite lease?
Level 1 Remembering
18 Compare Cash and Stock payment Merger. Level 2 Understanding
19 What is meant by reverse Merger & Acquisition? Level 1 Remembering
20
What are the objectives & benefits of Merger &
Acquisition?
Level 1 Remembering
PART- B
S.NO QUESTIONS BT LEVEL COMPETENCE
1
What are the salient features of a leasing arrangement? How
would you choose between leasing and buying?
Level 1 Remembering
2 Explain the different types of Leasing and its features. Level 2 Understanding
3
Identify the steps considered while making investment
decision of leasing or buying.
Level 3 Applying
4 Critically analyse the various types of investment decisions. Level 4 Analysing
5
Discuss the essential elements advantages for lessor and
lessee in leasing.
Level 5 Evaluating
6.
(i)Interpret the tax considerations on Hire purchasing
decision.
(ii)What are the pros and cons of Hire purchasing?
Level 6 Creating
7
(i)What are the methods of Hire Purchase system?
(ii)What do you understand by Installment Purchase
system? Elaborate its features.
Level 1 Remembering
8 Distinguish between leasing and Hire purchasing. Level 2 Understanding
9
Describe the of Leasing.
Level 3 Applying
10
Evaluate the guidelines followed by banks in Hire purchase
.
Level 4 Analysing
11 Highlight the real motives of mergers and acquisitions. Level 1 Remembering
12
Elucidate the different types of Merger. Also explain
important reasons for mergers.
Level 2 Understanding
13
(i) Evaluate the payment methods in M&A.
(ii)What are the benefits of stock payment merger?
Level 4 Analysing
14
Describe the various steps involved in a Merger and the
strategies involved in handling it.
Level 1 Remembering
PART - C
S.NO QUESTIONS
1
You work for a nuclear research laboratory that is contemplating leasing a diagnostic scanner (leasing is a
very common practice with expensive, high-tech equipment). The scanner costs Rs.10,00,000 and it
qualifies for a 30 percent CCA rate. Because of radiation contamination, it is valueless in four years. You
can lease it for Rs.3,00,000 per year for four years. Assume that the tax rate is 40 percent. You can
borrow at 8 percent pretax. Should you lease or buy?
2
Sunshine limited has an equity capital 6000 shares of Rs 100 each. The company plans to raise Rs400000
for expansion and modernization. The following alternatives are under consideration.
a) Issue of common stock
b) Issue of common stock for Rs 200000 and 10% debt for Rs 200000.
c) Issue of 10 % debt.
d) Issue of 10% preference shares of Rs 200000 and 10% debt for Rs 200000
The company?s existing earnings before interest and taxes are Rs 400000. The rate of corporate tax is
50%. Determine the earnings per share in each plan and give your comment.
3
Gama Fertilizers Company is taking over Theta Petrochemical Company. The shareholders of Theta
would receive 0.8 shares of Gama for each share held by them. The merger is not expected to yield in
economies of scale & operating synergy. The relevant data for the two companies is as follow:
Particulars Gama Theta
Net Sales (Rs Crore) 335 118
Profit after tax (Rs Crore) 58 12
Number of share (Crore) 12 3
Earnings per share (Rs) 4.83 4
Market value per share (Rs) 30 20
Price-earnings ratio 6.21 5
For the combined company (after merger), you are required to calculate
A. EPS,
B. P/E Ratio,
C. Market value per share,
D. Number of shares and
E. Total market capitalization.
F. Also calculate the premium paid by Gama to the shareholders of Theta.
4
A company is considering the lease of an equipment which has a purchase price of Rs.3,50,000. The
equipment has an estimated economic life of 5 years. As per the Income Tax Rule, a written down
depreciation at 25 per cent is allowed. The lease rentals per year are Rs.1,20,000. Assume that the
company?s marginal corporate tax rate is 50 per cent. If the before-tax borrowing rate for the company is
16 per cent, should the company lease the equipment? Ignore tax shield on depreciation after 5 years.
UNIT ? IV ? FINANCING DECISIONS
SYLLABUS: Capital Structure ? Capital structure theories ? Capital structure Planning in Practice
PART- A
S.NO QUESTIONS BT LEVEL COMPETENCE
1 Define Financial Leverage. Level 1 Remembering
2 Compare operating and financial leverage. Level 2 Understanding
3 Identify the bases of determining capital structure. Level 3 Applying
4 Classify the different forms of Capital Structure. Level 4 Analysing
5
Give the objectives of composite leverage.
Level 5 Evaluating
6
Can you assess the importance of arbitrage pricing in capital
structure theory?
Level 6 Creating
7
State the elements of Capital structure.
Level 1 Remembering
8 Distinguish NI and NOI approaches of Capital structure. Level 2 Understanding
9
Identify the different components of capital structure.
Level 3 Applying
10
Summarize the concept of Trading on equity.
Level 4 Analysing
11
Give the characteristic features of debt equity ratio and
interest coverage ratio.
Level 5 Evaluating
12
Can you interpret the existence of operating leverage in a
firm?s capital structure?
Level 6 Creating
13 What do you understand by EBIT? Level 1 Remembering
14
Write a note on EBIT-EPS analysis.
Level 2 Understanding
15 State the assumptions of MM approach. Level 3 Applying
16 Classify the types of Capital structure theories. Level 4 Analysing
17 What are the various forms of Cost based theories? Level 1 Remembering
18 Compare and Contrast arguments on MM approach. Level 2 Understanding
19
What is meant by Pecking order theory?
Level 1 Remembering
20
What do you understand by indifference point?
Level 1 Remembering
PART- B
S.NO QUESTIONS BT LEVEL COMPETENCE
1
What do you understand by Leverage? What are the factors
influencing leverage?
Level 1 Remembering
2
Explain the assumptions and three stages of traditional
approach in Capital Structure Theory.
Level 2 Understanding
3
Identify the computation of Indifference point in EBIT-EPS
analysis. Give examples.
Level 3 Applying
4
Critically analyze the assumptions and implications of NI and
NOI approach.
Level 4 Analysing
5
Discuss about the MM hypothesis on optimum capital
structure.
Level 5 Evaluating
6.
Sales = 1.00.000 units @ Rs.2 per unit
Variable Cost =0.65p
Fixed Cost= Rs.65,000
Interest Charges = Rs.15,000
Dividend Charges = Rs.6000
Tax rate = 35%
No. of Equity Shares = 30000
Calculate
A. EPS
B. What happens when sales increases by 15%
C. Operating Leverage, Financial Leverage & Combined
Leverage
Level 6 Creating
7
List the most critical factors of the determination of the
capital structure.
Level 1 Remembering
8
X Ltd has estimated that for a new product the BEP is 2000
units. If the products are sold at Rs.14 per unit. Variable Cost
amounts to Rs.9 per unit. Calculate Operating leverage for a
sales volume of 2500 units & 3000 units. What do you infer
from data at sales volume of 2500 units and 3000 units?
Level 2 Understanding
9
Calculate the Indifference point considering the following:
Tax rate = 55%
Market price of the share is Rs.100
a) Rs.20,00,000 through equity shares and Rs.10,00,000 @
10% debentures
b) Rs.10,00,000 @ 12% preference shares, Rs.8,00,000 @
10% debentures & Rs.12,00,000 through equity shares.
Level 3 Applying
10
Calculate Indifference point for the following financial
plans:
a) Entire amount through equity shares Rs.30,00,000
b) Rs.15,00,000@10% debentures, Rs.15,00,000 through
equity shares.
c) Rs.10,00,000@12% preference shares & Rs.20,00,000
through equity shares.
Tax rate is 55%, Market Price is Rs.100.
Level 4 Analysing
11
Define Capitalization. Explain about Under Capitalization
and Over Capitalization.
Level 1 Remembering
12
Calculate Financial leverage & Operating Leverage under
A& B for Financial plans 1 & 2. Installed capacity is
1000units. Actual Capacity is 800 units. Selling price per
unit is Rs.20, Variable cost per unit is Rs.15, Fixed cost is A)
Rs.800 B) Rs.500
Particulars Plan 1 Plan 2
Equity Capital Rs.5000 Rs.7000
Debentures Rs.5000 Rs.2000
Cost of Debt 10%
Market Price Rs.10
Tax rate 50%
Level 2 Understanding
13
A firm sells its products for Rs.200 per unit, has variable
operating cost of Rs.110 per unit and fixed operating cost of
Rs.50,000 per year. Show the various levels of EBIT that
would result from sale of (i) 800 units (ii)1800 units
(iii)3500 units
Level 4 Analysing
14
Sales = Rs.10,00,00
Variable Cost = 40%
Fixed Cost = Rs.2,00,000
10% Debentures @ Rs.10,00,00
Tax rate = 40%
12% Preference Share Capital @ Rs.10,00,000
Equity Shares = 1,00,000 shares
Calculate
(i)EPS
(ii) What happens if sales increase by 40%
(iii)Operating Leverage, Financial Leverage & Combined
Leverage
Level 1 Remembering
PART - C
S.NO QUESTIONS
1
Does the Financial leverage always increase the earnings per share ? illustrate your answers.
2
The firm?s existing financial structure is as follows:
Debentures ? Nil
Preference Shares ? Nil
Equity Share Capital ? Rs.10,00,000
Number of Equity shares ? 10,000
Tax Rate ? 40%
Present Market Price ? Rs 100.
The Company needs an additional capital of Rs.10,00,000. The company has the following financial
plans:
(i) Entire amount through equity shares
(ii) 50% through equity shares & 50% through 5% debentures
(iii) Entire amount through 6% debentures
(iv) 50% through equity shares, 30% through 5% debentures, 20% through preference shares @ 7%
3
Analyze the financial plans & Choose the best one. The company has the following capital structure. Tax
rate is 40%, Rs.2,00,000 debentures @ 10%, Rs.3,00,000 preference shares @ 12%, Number of equities
1,00,000, EBIT is Rs.6,00,000. The Company needs a finance of Rs.10,00,000. The company has the
following plans:
(i) Entirely through debt @ 11%
(ii) Rs.5,00,000 debentures @ 10%, Rs.3.00,000 preference shares @12%, Rs.2,00,000 through
equity shares
(iii) Rs.10,00,000 Preference shares @13%
(iv) Rs.10,00,000 through Equity shares
The present market price per share is Rs. 100..
4
What is meant by financial flexibility? Is a flexible capital structure costly?
UNIT ? V ? FINANCIAL DISTRESS
SYLLABUS: Consequences, Issues, Bankruptcy, Settlements, Reorganization and Liquidation in
Bankruptcy
PART- A
S.NO QUESTIONS BT LEVEL COMPETENCE
1
What is Financial distress?
Level 1 Remembering
2 Compare insolvency and financial distress. Level 2 Understanding
3
Identify the causes for a firm suffering from financial
distress.
Level 3 Applying
4
Classify the different types of financial distress.
Level 4 Analysing
5
Give the characteristic features of flow based & value-based
insolvency.
Level 5 Evaluating
6
Can you assess the responses to financial distress?
Level 6 Creating
7 What is Bankruptcy? Level 1 Remembering
8 Compare Asset restructuring and Financial restructuring. Level 2 Understanding
9 Identify the costs involved in financial distress. Level 3 Applying
10 Can you assess the various forms of financial distress? Level 4 Analysing
11
Give the reasons for bankruptcy.
Level 5 Evaluating
12
Can you interpret the term Creditor under IBC 2016?
Level 6 Creating
13
When a company becomes industrial sick company?
Level 1 Remembering
14
Write a note on issues in Bankruptcy.
Level 2 Understanding
15
Identify the alternatives to bankruptcy.
Level 3 Applying
16
Classify the types of Insolvency.
Level 4 Analysing
17
What do you understand by IBC 2016?
Level 1 Remembering
18
Compare and Contrast CDR and SDR.
Level 2 Understanding
19
What is meant by Reorganization?
Level 1 Remembering
20
State any two Bankruptcy prediction models.
Level 1 Remembering
PART- B
S.NO QUESTIONS BT LEVEL COMPETENCE
1 What are the Consequences of financial distress of a firm? Level 1 Remembering
2 How can a firm respond to its financial distress? Level 2 Understanding
3 Identify the happenings in a firm during financial distress. Level 3 Applying
4
Critically analyze the reasons and causes for financial
distress.
Level 4 Analysing
5
Elaborate about the Corporate Insolvency resolution process
according to IBC 2016.
Level 5 Evaluating
6.
Discuss about the role played by BIFR in reconstructing
distressed .
Level 6 Creating
7
What are the various types of Creditors under IBC 2016?
Elaborate.
Level 1 Remembering
8
Write Short notes on:
(i) Financial issues
(ii) Settlements
(iii) Reorganization
(iv) Liquidation in bankruptcy
Level 2 Understanding
9 Describe about the Liquidation process happening in the firm. Level 3 Applying
10
Evaluate on the voluntary winding up procedures of the
company after being bankrupt.
Level 4 Analysing
11
(i)Explain the various modes of Liquidation. (7 marks)
(ii) List the priority of claims in Liquidation. (6 marks)
Level 1 Remembering
12 Elaborate the bankruptcy prediction models with examples. Level 2 Understanding
FirstRanker.com - FirstRanker's Choice
?
DEPARTMENT OF MANAGEMENT STUDIES
QUESTION BANK
III SEMESTER
BA5013 ? STRATEGIC INVESTMENT AND FINANCING DECISIONS
Regulation ? 2017
Academic Year 2019 - 2020
Prepared by
Mrs. A. UmaDevi ? Asst. Professor
Mr. K. Suresh ? Asst. Professor
? .
DEPARTMENT OFMANAGEMENT STUDIES
QUESTION BANK
SUBJECT : BA5013 ? STRATEGIC INVESTMENT AND FINANCING DECISIONS
SEM / YEAR : III Semester / II Year
UNIT ? I ? INVESTMENT DECISIONS
SYLLABUS: Project Investment Management Vs Project Management ? Introduction to profitable
projects ? evaluation of Investment opportunities ? Investment decisions under conditions of uncertainty
? Risk analysis in Investment decision ? Types of investments and disinvestments.
PART- A
S.NO QUESTIONS BT LEVEL COMPETENCE
1
What is Investment Management?
Level 1 Remembering
2
Compare Project Investment management and Project
Management.
Level 2 Understanding
3
Identify the features of Investment decisions.
Level 3 Applying
4
Classify the different ways of evaluating investment
opportunities.
Level 4 Analysing
5
Give the objectives of profitable project.
Level 5 Evaluating
6
Can you assess the importance of discounted cash flow method?
Level 6 Creating
7
What is uncertainty in financial investment?
Level 1 Remembering
8
Distinguish RAD and CE.
Level 2 Understanding
9
Identify the different types of Investment.
Level 3 Applying
10
Summarize the concept of Capital Budgeting.
Level 4 Analysing
11
Give five qualities required for successful investing.
Level 5 Evaluating
12
Interpret the objectives of Investment.
Level 6 Creating
13
Define Project Management.
Level 1 Remembering
14
Distinguish between systematic & unsystematic risk.
Level 2 Understanding
15
How is Disinvestment undertaken?
Level 3 Applying
16
Classify the types of Disinvestments.
Level 4 Analysing
17
What are the principal methods employed for ascertaining the
profitability of capital expenditure project?
Level 1 Remembering
18
Differentiate Investment and Disinvestment.
Level 2 Understanding
19
Explain the term ?Project Profitability? in investment
management.
Level 1 Remembering
20
How do you measure risk by means of standard deviation &
Coefficient of Variance?
Level 1 Remembering
PART- B
S.NO QUESTIONS BT LEVEL COMPETENCE
1
What key issues are examined while making a major
Investment decision?
Level 1 Remembering
2 Identify the different types of investments and its features. Level 2 Understanding
3 Explain the different kinds of project risks. Level 3 Applying
4
i) Discuss the steps involved in Simulation analysis. (5
marks)
Level 4 Analysing
ii) What are the pros and cons of simulation analysis? (8
marks)
5
Critically examine how you would assess the profitability of
a project.
Level 5 Evaluating
6.
Interpret Sensitivity analysis method of investment analysis
with an example.
Level 6 Creating
7
How will you analyze the risk before taking any investment
decision?
Level 1 Remembering
8 Discuss the disinvestment methods available for corporates. Level 2 Understanding
9 Describe the advantages of investments. Level 3 Applying
10 Explain the evaluation of Investment Opportunities. Level 4 Analysing
11
?Risk analysis is an essential feature of investment decision
making process?. What are the major risk factors and how
will you control them?
Level 1 Remembering
12
Define Capital budgeting. Explain briefly the various risk
management techniques in capital budgeting with
illustrations.
Level 2 Understanding
13
X company is considering two projects M&N, each of which
require an initial outlay of Rs.50 lakhs. The expected cash
inflows from these projects are:
Year Project M Project N
1 12 37
2 18 24
3 33 19
4 36 12
1. What is the PBP for each of the project?
2. If the two projects are mutually exclusive and the cost of
capital is 15%. Which project should the firm invest in?
3. If cost of capital is 14%, What is the modified IRR of
each project?
Level 4 Analysing
14
From the following information, ascertain which project
should be selected on the basis of standard deviation.
Project X Project Y
Cash
Inflow
Probability
Cash
Inflow
Probability
3200 0.2 2400 0.1
5500 0.3 7400 0.4
7400 0.3 8800 0.4
8900 0.2 5500 0.1
Level 1 Remembering
PART - C
S.NO QUESTIONS
1
Capital expenditure decisions are by far the most important decisions in the field of management. Illustrate
2
There are 3 securities X, Y, and Z. The returns are given as below; Select the securities based on risk and
return. Calculate average returns, variance and standard deviation.
Security X 30 20 22 33 15
Security Y -20 10 20 10 20
Security Z -20 -10 -5 10 30
3
Is there any difference between risk and uncertainty? Elucidate about capital budgeting decisions in an
organization.
4
How can Utility theory be incorporated in the capital budgeting decision to account for the risk preferences
of the decision maker?
UNIT ? II ? CRITICAL ANALYSIS OF APPRAISAL TECHNIQUES
SYLLABUS: Significance of Information and data bank in project selections ? Investment decisions
under capital constraints ? capital rationing, Portfolio ? Portfolio risk and diversified projects.
PART- A
S.NO QUESTIONS BT LEVEL COMPETENCE
1
Define Capital rationing.
Level 1 Remembering
2 Compare capital constraint on risk analysis. Level 2 Understanding
3
Identify the different steps in decision tree.
Level 3 Applying
4 Classify the different ways of evaluating project selection. Level 4 Analysing
5 Give the objectives of data bank in project selection. Level 5 Evaluating
6
Can you assess the importance of data bank in project
selection?
Level 6 Creating
7
What is meant by Capital constraint?
Level 1 Remembering
8
Draw a decision tree & illustrate.
Level 2 Understanding
9
Identify the steps in Simulation analysis.
Level 3 Applying
10 What is Capital constraint? Level 4 Analysing
11
Give a note on risky investments.
Level 5 Evaluating
12
Interpret the objectives of project selection.
Level 6 Creating
13 Define Capital rationing. Level 1 Remembering
14
Compare portfolio risk & diversification.
Level 2 Understanding
15
How is Portfolio diversification undertaken?
Level 3 Applying
16 Identify the features of diversification. Level 4 Analysing
17
What are the advantages & disadvantages of decision tree
approach?
Level 1 Remembering
18
Write down the need for portfolio diversification.
Level 2 Understanding
19
What is portfolio risk?
Level 1 Remembering
20 How do you measure risk by means of Sensitivity analysis? Level 1 Remembering
PART- B
S.NO QUESTIONS BT LEVEL COMPETENCE
1
Discuss about examination of the secondary information for
reliability and relevance for the consideration purpose.
Level 1 Remembering
2
Narrate the various techniques used to construct a good
portfolio.
Level 2 Understanding
3
Elucidate the various techniques available for incorporating
risk factor in capital investment proposals with practical
examples.
Level 3 Applying
4 Explain the programming approach to capital rationing. Level 4 Analysing
5
From the following information state which project is
preferred? Two alternative projects are available (project X
and project Y) each costing Rs.10,00,000. The company has a
target return on capital (riskless discount rate) of 10%. The
management considers risk premium rate at 2 percent and 8
percent respectively, project X and project Y.
Year 1 2 3 4
Project X 400000 350000 250000 200000
Project Y 500000 400000 300000 200000
Level 5 Evaluating
6.
From the under mentioned facts, compute the NPV of the
two projects for the each of the possible cash flows, using
Sensitivity Analysis.
Particulars
Project X
('000)
Project
Y ('000)
Initial Cash
Outlay (t0)
Rs 40 Rs 40
Cash flow
Estimates
(t-1-15)
Worst 6 0
Most
Likely
8 8
Best 10 16
Required Rate
of Return
0.1 0.1
Economic Life
(in years)
5 15
Level 6 Creating
7
M/S Zenith Enterprises is considering a project with the
following cash flows:
Year
Cost of Plant
(Rs.)
Running Cost
(Rs.)
Savings
(Rs.)
0 (7000)
1 2000 6000
2 2500 7000
The Cost of Capital of firm is 8%. Measure the sensitivity of
the project to changes in the levels of plant value, costs and
savings (considering each factor at a time) such that the net
present value of the project becomes zero. What factor is the
most sensitive to affect the acceptability of the project?
Level 1 Remembering
8
Mr. Selva is considering two mutually exclusive project ?X?
and ?Y?. You are required to advise him about the
acceptability of the projects from the following information.
The cut-off rate may be assumed to be 15%.
Project X Project Y
Cost of the Investment 1,00,000 1,00,000
Forecast cash inflows per
annum for 5 years
Optimistic 60000 55000
Most likely 35000 30000
Pessimistic 20000 20000
Level 2 Understanding
9
A company is considering two mutually exclusive projects,
both require an initial cash outlay of Rs. 10,000 each and have
a life of 5 years. The company?s required rate of return 10%
and pays tax at 50 %. The project will be depreciated on a
straight-line basis. The before tax cash flows expected to be
generated by the project are as follows.
Before tax cash flows:
Year Project A Project B
1 4,000 5,000
2 4,000 5,000
3 4,000 2,000
4 4,000 5,000
5 4,000 5,000
Calculate for each project: (i) PBP (ii) NPV (iii) PI. Which
project should be accepted and why?
Level 3 Applying
10
Determine the payback period from the following cash flows
Year CFAT
0 100000
1 20000
2 30000
3 40000
4 50000
5 60000
Level 4 Analysing
11
How the principles of capital rationing are considered as best
evaluation technique under such circumstances?
Level 1 Remembering
12 What are the circumstances NPV & IRR differ? Level 2 Understanding
13
How would you select the investment projects under one-
period capital constraints?
Level 4 Analysing
14
X ltd has five projects. Details are given below. Rank the
five projects based on NPV and IRR. The discount rate is
10%.
Project
Investment
Outlay (Rs.)
Expected
Annual Cash
Inflow (Rs.)
Project
life(years)
M
50,000 18,000 10
N 1,00,000 50,000 4
O 1,20,000 30,000 8
P 1,50,000 40,000 16
Q 2,00,000 30,000 25
Level 1 Remembering
PART - C
S.NO QUESTIONS
1
X ltd is considering the purchase of a new plant requiring a cash outlay of Rs.20,000. The plant is
expected to have a useful life of 2 years without any salvage value. The cash flows and their associated
probabilities for the two years are as follows: Presuming that 10% is the cost of capital you plot the above
data in the form of a decision tree and suggest whether the project should be taken up or not.
First Year Cash Flow Probability
I 8000 0.3
II 11000 0.4
III 15000 0.3
Second Year, if First year Cash Flow is 8000
Cash Flow Probability
I 4000 0.2
II 10000 0.6
III 15000 0.2
Second Year, if First year Cash Flow is 11000
Cash Flow Probability
I 13000 0.3
II 15000 0.4
III 16000 0.3
Second Year, if First year Cash Flow is 15000
Cash Flow Probability
I 16000 0.1
II 20000 0.8
III 24000 0.1
2
A firm has an investment proposal, requiring an outlay of Rs.40,000. The investment proposal is expected
to have 2 years economical life with no salvage value. In year I, there is a 0.4 probability that cash inflow
after tax will be Rs.25000 and 0.6 probabilities that cash inflow after tax will be Rs.30,000. The
probability assigned to cash inflow after tax for the year II are as follows: The firm uses a 10% discount
rate for this type of investment. Construct a decision tree for the proposed investment project.
Cash Inflow Year I Rs.25000 Rs.30000
Cash Inflow Year II
with probabilities
Rs.12000
Rs.16000
Rs.22000
0.2
0.3
0.5
Rs.20000
Rs.25000
Rs.30000
0.4
0.5
0.1
3
What is Profitability Index? Which is a superior ranking criterion, profitability index or NPV?
4
Do you think Capital rationing lead to sub-optimal investment decision? Explain
UNIT ? III ? STRATEGIC ANALYSIS OF SELECTED INVESTMENT
SYLLABUS: Lease financing ? Lease Vs Buy decision ? Hire Purchase and installment decision ? Hire
Purchase Vs Lease Decision ? Mergers and acquisition ? Cash Vs Equity for mergers.
PART- A
S.NO QUESTIONS BT LEVEL COMPETENCE
1 Define Leasing. Level 1 Remembering
2
Compare Lease and Buy decision.
Level 2 Understanding
3
Identify the features of Lease financing.
Level 3 Applying
4 Classify the different types of Lease. Level 4 Analysing
5
Give the objectives of Lease financing.
Level 5 Evaluating
6 Can you assess the importance of buying decision? Level 6 Creating
7
Define Hire purchase?
Level 1 Remembering
8 Distinguish Hire purchase and Installment decision. Level 2 Understanding
9
Identify the different types of Hire purchase agreements.
Level 3 Applying
10 Summarize the concept of Installment decision. Level 4 Analysing
11
Give the characteristic features of hire purchase.
Level 5 Evaluating
12
Can you interpret about the parties involved in hire
purchase?
Level 6 Creating
13 Define Merger. Level 1 Remembering
14
Distinguish between Merger & Acquisition.
Level 2 Understanding
15
Identify the features of Merger.
Level 3 Applying
16
Classify the types of Merger.
Level 4 Analysing
17
What is tripartite lease?
Level 1 Remembering
18 Compare Cash and Stock payment Merger. Level 2 Understanding
19 What is meant by reverse Merger & Acquisition? Level 1 Remembering
20
What are the objectives & benefits of Merger &
Acquisition?
Level 1 Remembering
PART- B
S.NO QUESTIONS BT LEVEL COMPETENCE
1
What are the salient features of a leasing arrangement? How
would you choose between leasing and buying?
Level 1 Remembering
2 Explain the different types of Leasing and its features. Level 2 Understanding
3
Identify the steps considered while making investment
decision of leasing or buying.
Level 3 Applying
4 Critically analyse the various types of investment decisions. Level 4 Analysing
5
Discuss the essential elements advantages for lessor and
lessee in leasing.
Level 5 Evaluating
6.
(i)Interpret the tax considerations on Hire purchasing
decision.
(ii)What are the pros and cons of Hire purchasing?
Level 6 Creating
7
(i)What are the methods of Hire Purchase system?
(ii)What do you understand by Installment Purchase
system? Elaborate its features.
Level 1 Remembering
8 Distinguish between leasing and Hire purchasing. Level 2 Understanding
9
Describe the of Leasing.
Level 3 Applying
10
Evaluate the guidelines followed by banks in Hire purchase
.
Level 4 Analysing
11 Highlight the real motives of mergers and acquisitions. Level 1 Remembering
12
Elucidate the different types of Merger. Also explain
important reasons for mergers.
Level 2 Understanding
13
(i) Evaluate the payment methods in M&A.
(ii)What are the benefits of stock payment merger?
Level 4 Analysing
14
Describe the various steps involved in a Merger and the
strategies involved in handling it.
Level 1 Remembering
PART - C
S.NO QUESTIONS
1
You work for a nuclear research laboratory that is contemplating leasing a diagnostic scanner (leasing is a
very common practice with expensive, high-tech equipment). The scanner costs Rs.10,00,000 and it
qualifies for a 30 percent CCA rate. Because of radiation contamination, it is valueless in four years. You
can lease it for Rs.3,00,000 per year for four years. Assume that the tax rate is 40 percent. You can
borrow at 8 percent pretax. Should you lease or buy?
2
Sunshine limited has an equity capital 6000 shares of Rs 100 each. The company plans to raise Rs400000
for expansion and modernization. The following alternatives are under consideration.
a) Issue of common stock
b) Issue of common stock for Rs 200000 and 10% debt for Rs 200000.
c) Issue of 10 % debt.
d) Issue of 10% preference shares of Rs 200000 and 10% debt for Rs 200000
The company?s existing earnings before interest and taxes are Rs 400000. The rate of corporate tax is
50%. Determine the earnings per share in each plan and give your comment.
3
Gama Fertilizers Company is taking over Theta Petrochemical Company. The shareholders of Theta
would receive 0.8 shares of Gama for each share held by them. The merger is not expected to yield in
economies of scale & operating synergy. The relevant data for the two companies is as follow:
Particulars Gama Theta
Net Sales (Rs Crore) 335 118
Profit after tax (Rs Crore) 58 12
Number of share (Crore) 12 3
Earnings per share (Rs) 4.83 4
Market value per share (Rs) 30 20
Price-earnings ratio 6.21 5
For the combined company (after merger), you are required to calculate
A. EPS,
B. P/E Ratio,
C. Market value per share,
D. Number of shares and
E. Total market capitalization.
F. Also calculate the premium paid by Gama to the shareholders of Theta.
4
A company is considering the lease of an equipment which has a purchase price of Rs.3,50,000. The
equipment has an estimated economic life of 5 years. As per the Income Tax Rule, a written down
depreciation at 25 per cent is allowed. The lease rentals per year are Rs.1,20,000. Assume that the
company?s marginal corporate tax rate is 50 per cent. If the before-tax borrowing rate for the company is
16 per cent, should the company lease the equipment? Ignore tax shield on depreciation after 5 years.
UNIT ? IV ? FINANCING DECISIONS
SYLLABUS: Capital Structure ? Capital structure theories ? Capital structure Planning in Practice
PART- A
S.NO QUESTIONS BT LEVEL COMPETENCE
1 Define Financial Leverage. Level 1 Remembering
2 Compare operating and financial leverage. Level 2 Understanding
3 Identify the bases of determining capital structure. Level 3 Applying
4 Classify the different forms of Capital Structure. Level 4 Analysing
5
Give the objectives of composite leverage.
Level 5 Evaluating
6
Can you assess the importance of arbitrage pricing in capital
structure theory?
Level 6 Creating
7
State the elements of Capital structure.
Level 1 Remembering
8 Distinguish NI and NOI approaches of Capital structure. Level 2 Understanding
9
Identify the different components of capital structure.
Level 3 Applying
10
Summarize the concept of Trading on equity.
Level 4 Analysing
11
Give the characteristic features of debt equity ratio and
interest coverage ratio.
Level 5 Evaluating
12
Can you interpret the existence of operating leverage in a
firm?s capital structure?
Level 6 Creating
13 What do you understand by EBIT? Level 1 Remembering
14
Write a note on EBIT-EPS analysis.
Level 2 Understanding
15 State the assumptions of MM approach. Level 3 Applying
16 Classify the types of Capital structure theories. Level 4 Analysing
17 What are the various forms of Cost based theories? Level 1 Remembering
18 Compare and Contrast arguments on MM approach. Level 2 Understanding
19
What is meant by Pecking order theory?
Level 1 Remembering
20
What do you understand by indifference point?
Level 1 Remembering
PART- B
S.NO QUESTIONS BT LEVEL COMPETENCE
1
What do you understand by Leverage? What are the factors
influencing leverage?
Level 1 Remembering
2
Explain the assumptions and three stages of traditional
approach in Capital Structure Theory.
Level 2 Understanding
3
Identify the computation of Indifference point in EBIT-EPS
analysis. Give examples.
Level 3 Applying
4
Critically analyze the assumptions and implications of NI and
NOI approach.
Level 4 Analysing
5
Discuss about the MM hypothesis on optimum capital
structure.
Level 5 Evaluating
6.
Sales = 1.00.000 units @ Rs.2 per unit
Variable Cost =0.65p
Fixed Cost= Rs.65,000
Interest Charges = Rs.15,000
Dividend Charges = Rs.6000
Tax rate = 35%
No. of Equity Shares = 30000
Calculate
A. EPS
B. What happens when sales increases by 15%
C. Operating Leverage, Financial Leverage & Combined
Leverage
Level 6 Creating
7
List the most critical factors of the determination of the
capital structure.
Level 1 Remembering
8
X Ltd has estimated that for a new product the BEP is 2000
units. If the products are sold at Rs.14 per unit. Variable Cost
amounts to Rs.9 per unit. Calculate Operating leverage for a
sales volume of 2500 units & 3000 units. What do you infer
from data at sales volume of 2500 units and 3000 units?
Level 2 Understanding
9
Calculate the Indifference point considering the following:
Tax rate = 55%
Market price of the share is Rs.100
a) Rs.20,00,000 through equity shares and Rs.10,00,000 @
10% debentures
b) Rs.10,00,000 @ 12% preference shares, Rs.8,00,000 @
10% debentures & Rs.12,00,000 through equity shares.
Level 3 Applying
10
Calculate Indifference point for the following financial
plans:
a) Entire amount through equity shares Rs.30,00,000
b) Rs.15,00,000@10% debentures, Rs.15,00,000 through
equity shares.
c) Rs.10,00,000@12% preference shares & Rs.20,00,000
through equity shares.
Tax rate is 55%, Market Price is Rs.100.
Level 4 Analysing
11
Define Capitalization. Explain about Under Capitalization
and Over Capitalization.
Level 1 Remembering
12
Calculate Financial leverage & Operating Leverage under
A& B for Financial plans 1 & 2. Installed capacity is
1000units. Actual Capacity is 800 units. Selling price per
unit is Rs.20, Variable cost per unit is Rs.15, Fixed cost is A)
Rs.800 B) Rs.500
Particulars Plan 1 Plan 2
Equity Capital Rs.5000 Rs.7000
Debentures Rs.5000 Rs.2000
Cost of Debt 10%
Market Price Rs.10
Tax rate 50%
Level 2 Understanding
13
A firm sells its products for Rs.200 per unit, has variable
operating cost of Rs.110 per unit and fixed operating cost of
Rs.50,000 per year. Show the various levels of EBIT that
would result from sale of (i) 800 units (ii)1800 units
(iii)3500 units
Level 4 Analysing
14
Sales = Rs.10,00,00
Variable Cost = 40%
Fixed Cost = Rs.2,00,000
10% Debentures @ Rs.10,00,00
Tax rate = 40%
12% Preference Share Capital @ Rs.10,00,000
Equity Shares = 1,00,000 shares
Calculate
(i)EPS
(ii) What happens if sales increase by 40%
(iii)Operating Leverage, Financial Leverage & Combined
Leverage
Level 1 Remembering
PART - C
S.NO QUESTIONS
1
Does the Financial leverage always increase the earnings per share ? illustrate your answers.
2
The firm?s existing financial structure is as follows:
Debentures ? Nil
Preference Shares ? Nil
Equity Share Capital ? Rs.10,00,000
Number of Equity shares ? 10,000
Tax Rate ? 40%
Present Market Price ? Rs 100.
The Company needs an additional capital of Rs.10,00,000. The company has the following financial
plans:
(i) Entire amount through equity shares
(ii) 50% through equity shares & 50% through 5% debentures
(iii) Entire amount through 6% debentures
(iv) 50% through equity shares, 30% through 5% debentures, 20% through preference shares @ 7%
3
Analyze the financial plans & Choose the best one. The company has the following capital structure. Tax
rate is 40%, Rs.2,00,000 debentures @ 10%, Rs.3,00,000 preference shares @ 12%, Number of equities
1,00,000, EBIT is Rs.6,00,000. The Company needs a finance of Rs.10,00,000. The company has the
following plans:
(i) Entirely through debt @ 11%
(ii) Rs.5,00,000 debentures @ 10%, Rs.3.00,000 preference shares @12%, Rs.2,00,000 through
equity shares
(iii) Rs.10,00,000 Preference shares @13%
(iv) Rs.10,00,000 through Equity shares
The present market price per share is Rs. 100..
4
What is meant by financial flexibility? Is a flexible capital structure costly?
UNIT ? V ? FINANCIAL DISTRESS
SYLLABUS: Consequences, Issues, Bankruptcy, Settlements, Reorganization and Liquidation in
Bankruptcy
PART- A
S.NO QUESTIONS BT LEVEL COMPETENCE
1
What is Financial distress?
Level 1 Remembering
2 Compare insolvency and financial distress. Level 2 Understanding
3
Identify the causes for a firm suffering from financial
distress.
Level 3 Applying
4
Classify the different types of financial distress.
Level 4 Analysing
5
Give the characteristic features of flow based & value-based
insolvency.
Level 5 Evaluating
6
Can you assess the responses to financial distress?
Level 6 Creating
7 What is Bankruptcy? Level 1 Remembering
8 Compare Asset restructuring and Financial restructuring. Level 2 Understanding
9 Identify the costs involved in financial distress. Level 3 Applying
10 Can you assess the various forms of financial distress? Level 4 Analysing
11
Give the reasons for bankruptcy.
Level 5 Evaluating
12
Can you interpret the term Creditor under IBC 2016?
Level 6 Creating
13
When a company becomes industrial sick company?
Level 1 Remembering
14
Write a note on issues in Bankruptcy.
Level 2 Understanding
15
Identify the alternatives to bankruptcy.
Level 3 Applying
16
Classify the types of Insolvency.
Level 4 Analysing
17
What do you understand by IBC 2016?
Level 1 Remembering
18
Compare and Contrast CDR and SDR.
Level 2 Understanding
19
What is meant by Reorganization?
Level 1 Remembering
20
State any two Bankruptcy prediction models.
Level 1 Remembering
PART- B
S.NO QUESTIONS BT LEVEL COMPETENCE
1 What are the Consequences of financial distress of a firm? Level 1 Remembering
2 How can a firm respond to its financial distress? Level 2 Understanding
3 Identify the happenings in a firm during financial distress. Level 3 Applying
4
Critically analyze the reasons and causes for financial
distress.
Level 4 Analysing
5
Elaborate about the Corporate Insolvency resolution process
according to IBC 2016.
Level 5 Evaluating
6.
Discuss about the role played by BIFR in reconstructing
distressed .
Level 6 Creating
7
What are the various types of Creditors under IBC 2016?
Elaborate.
Level 1 Remembering
8
Write Short notes on:
(i) Financial issues
(ii) Settlements
(iii) Reorganization
(iv) Liquidation in bankruptcy
Level 2 Understanding
9 Describe about the Liquidation process happening in the firm. Level 3 Applying
10
Evaluate on the voluntary winding up procedures of the
company after being bankrupt.
Level 4 Analysing
11
(i)Explain the various modes of Liquidation. (7 marks)
(ii) List the priority of claims in Liquidation. (6 marks)
Level 1 Remembering
12 Elaborate the bankruptcy prediction models with examples. Level 2 Understanding
13
Explain the rehabilitation assistance provided by the banks
and financial s on revival of a Sick Unit.
Level 4 Analysing
14 Discuss the major causes of failure? Level 1 Remembering
PART - C
S.NO QUESTIONS
1 Do you think liquidations result in losses for the creditors or the owners or the both? Explain.
2
On September 15, 2008, Lehman Brothers filed for bankruptcy. With $639 billion in assets and $619
billion in debt, Lehman's bankruptcy filing was the largest in history. Lehman was the fourth-largest U.S.
investment bank at the time of its collapse, with 25,000 employees worldwide. Lehman's demise also
made it the largest victim of the U.S. subprime mortgage-induced financial crisis that swept through
global financial markets in 2008. Lehman's collapse was a seminal event that greatly intensified the 2008
crisis and contributed to the erosion of close to $10 trillion in market capitalization from global equity
markets in October 2008 ? the biggest monthly decline on record at the time. Collapse of Lehman
Brothers ? An event hurtled for global economic crisis. Elaborate.
3 Explain the role played by NCLT in undertaking bankruptcy.
4 Are liquidations likely to be more common for public utility, railroad or industrial corporations? Why?
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This post was last modified on 29 February 2020