Download GTU (Gujarat Technological University) MBA (Master of Business Administration) 2019 Summer 2nd Sem 1529302 Financial Management Previous Question Paper
Seat No.: ________ Enrolment No.___________
GUJARAT TECHNOLOGICAL UNIVERSITY
MBA (International Business) ? SEMESTER - 2 EXAMINATION ? SUMMER - 2019
Subject Code: 1529302 Date:10/05/2019
Subject Name: Financial Management
Time: 10:30 AM to 1:30 PM Total Marks: 70
Instructions:
1. Attempt all questions.
2. Make suitable assumptions wherever necessary.
3. Figures to the right indicate full marks.
Q.1 Explain following terms:
(a) Time Value of Money
(b) Financial Management
(c) Opportunity Cost of Capital
(d) Leverage
(e) Operating Cycle
(f) Optimum Capital Structure
(g) Gross Working Capital
14
Q.2 (a) ?Profit maximization is pre-requisite for shareholders? wealth
maximization? Do you agree? Give a brief account of the advantages
and disadvantages of these goals.
07
(b) ABC Ltd has borrowed Rs 1,000 to be repaid in equal instalments at the
end of each of the next 3 years. The interest rate is 15 per cent. Prepare
a amortization schedule.
07
OR
(b) An investor is 50 years of age today. He will retire at the age of 60. In
order to receive Rs 2,00,000 annually for 10 years after retirement, how
much amount should he have at the time of retirement? Assume the
required rate of return is 10 per cent.
07
Q.3 (a) Discuss the determinants of working capital. 07
(b) The Complete Gardener is deciding on the economic order quantity for
two brands of lawn fertilizer: Super Grow and Nature?s Own. The
following information is collected:
Fertilizer
Particulars Super
Grow
Nature?s
Own
Annual Demand 2,000 1,280
Relevant Ordering Cost per purchase Order Rs. 1,200 Rs. 1,400
Annual relevant carrying cost per bag 480 560
Required:
(i) Compute EOQ for Super Grow and Nature?s Own.
(ii) For the EOQ, what is the sum of the total annual relevant ordering
costs and total annual relevant carrying costs for Super Grow and
Nature?s Own?
(iii) For the EOQ, compute the number of deliveries per year for Super
Grow and Nature?s Own.
07
OR
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Page 1 of 3
Seat No.: ________ Enrolment No.___________
GUJARAT TECHNOLOGICAL UNIVERSITY
MBA (International Business) ? SEMESTER - 2 EXAMINATION ? SUMMER - 2019
Subject Code: 1529302 Date:10/05/2019
Subject Name: Financial Management
Time: 10:30 AM to 1:30 PM Total Marks: 70
Instructions:
1. Attempt all questions.
2. Make suitable assumptions wherever necessary.
3. Figures to the right indicate full marks.
Q.1 Explain following terms:
(a) Time Value of Money
(b) Financial Management
(c) Opportunity Cost of Capital
(d) Leverage
(e) Operating Cycle
(f) Optimum Capital Structure
(g) Gross Working Capital
14
Q.2 (a) ?Profit maximization is pre-requisite for shareholders? wealth
maximization? Do you agree? Give a brief account of the advantages
and disadvantages of these goals.
07
(b) ABC Ltd has borrowed Rs 1,000 to be repaid in equal instalments at the
end of each of the next 3 years. The interest rate is 15 per cent. Prepare
a amortization schedule.
07
OR
(b) An investor is 50 years of age today. He will retire at the age of 60. In
order to receive Rs 2,00,000 annually for 10 years after retirement, how
much amount should he have at the time of retirement? Assume the
required rate of return is 10 per cent.
07
Q.3 (a) Discuss the determinants of working capital. 07
(b) The Complete Gardener is deciding on the economic order quantity for
two brands of lawn fertilizer: Super Grow and Nature?s Own. The
following information is collected:
Fertilizer
Particulars Super
Grow
Nature?s
Own
Annual Demand 2,000 1,280
Relevant Ordering Cost per purchase Order Rs. 1,200 Rs. 1,400
Annual relevant carrying cost per bag 480 560
Required:
(i) Compute EOQ for Super Grow and Nature?s Own.
(ii) For the EOQ, what is the sum of the total annual relevant ordering
costs and total annual relevant carrying costs for Super Grow and
Nature?s Own?
(iii) For the EOQ, compute the number of deliveries per year for Super
Grow and Nature?s Own.
07
OR
Page 2 of 3
Q.3 (a) Write a note on inventory management techniques. 07
(b) The share capital of a company is Rs. 10,00,000 with shares of face
value of Rs. 10. The company has debt capital of Rs. 6,00,000 at 10%
rate of interest. The sales of the firm are 3,00,000 units per annum at
selling price of Rs. 5 per unit and the variable cost is Rs. 3 per unit. The
fixed cost amounts to Rs. 2,00,000. The company pays tax at 35%. If
the sales increase by 10%, calculate:
(1) Percentage increase in EPS;
(2) Degree of Operating Leverage at the two levels
(3) Degree of Financial leverage at the two levels.
07
Q.4 (a) What are the essentials of Walter?s Dividend Model? Explain its
shortcomings?
07
(b) From the following selected data, determine the value of firms, P and Q
belonging to the homogenous risk class.
Firm P Firm Q
EBIT Rs. 2,25,000 Rs. 2,25,000
Interest at 15% 75,000 ----
Equity Capitalization
Rate Ke
20%
Corporate Tax 50%
Which of the two firms has an optimal capital structure under the NOI
approach?
07
OR
Q.4 (a) What are the advantages and disadvantages of debenture as an
instrument of financing from the point of view of the company as well
as the investors?
07
(b) Assuming the rate of return expected by investor is 11%; internal rate of
return is 12%; and earnings per share is Rs. 15, calculate price per share
by Gordon Approach method if dividend payout ratio is 10% and 30%.
07
Q.5
XYZ Ltd has the following books values capital structure:
(Rs. in Crore)
Equity Capital (in shares of Rs. 10 each, fully paid up ? at par) 15
12% Preference shares 1
Retained Earnings 20
11.5% Debentures 10
11% Term Loans 12.5
The next expected dividend on equity shares per share is Rs. 3.60; the
dividend per share is expected to grow at the rate of 7 per cent. The
Market price per share is Rs. 40.
Preference stock, redeemable after ten years, is currently selling at Rs.
75 per share.
Debentures, redeemable after six years, are selling at Rs. 80 per
debenture. The income tax rate for the company is 40 per cent.
Required:
Calculate the weighted average cost of capital using:
a) book value proportions and b) market value proportions.
14
OR
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Page 1 of 3
Seat No.: ________ Enrolment No.___________
GUJARAT TECHNOLOGICAL UNIVERSITY
MBA (International Business) ? SEMESTER - 2 EXAMINATION ? SUMMER - 2019
Subject Code: 1529302 Date:10/05/2019
Subject Name: Financial Management
Time: 10:30 AM to 1:30 PM Total Marks: 70
Instructions:
1. Attempt all questions.
2. Make suitable assumptions wherever necessary.
3. Figures to the right indicate full marks.
Q.1 Explain following terms:
(a) Time Value of Money
(b) Financial Management
(c) Opportunity Cost of Capital
(d) Leverage
(e) Operating Cycle
(f) Optimum Capital Structure
(g) Gross Working Capital
14
Q.2 (a) ?Profit maximization is pre-requisite for shareholders? wealth
maximization? Do you agree? Give a brief account of the advantages
and disadvantages of these goals.
07
(b) ABC Ltd has borrowed Rs 1,000 to be repaid in equal instalments at the
end of each of the next 3 years. The interest rate is 15 per cent. Prepare
a amortization schedule.
07
OR
(b) An investor is 50 years of age today. He will retire at the age of 60. In
order to receive Rs 2,00,000 annually for 10 years after retirement, how
much amount should he have at the time of retirement? Assume the
required rate of return is 10 per cent.
07
Q.3 (a) Discuss the determinants of working capital. 07
(b) The Complete Gardener is deciding on the economic order quantity for
two brands of lawn fertilizer: Super Grow and Nature?s Own. The
following information is collected:
Fertilizer
Particulars Super
Grow
Nature?s
Own
Annual Demand 2,000 1,280
Relevant Ordering Cost per purchase Order Rs. 1,200 Rs. 1,400
Annual relevant carrying cost per bag 480 560
Required:
(i) Compute EOQ for Super Grow and Nature?s Own.
(ii) For the EOQ, what is the sum of the total annual relevant ordering
costs and total annual relevant carrying costs for Super Grow and
Nature?s Own?
(iii) For the EOQ, compute the number of deliveries per year for Super
Grow and Nature?s Own.
07
OR
Page 2 of 3
Q.3 (a) Write a note on inventory management techniques. 07
(b) The share capital of a company is Rs. 10,00,000 with shares of face
value of Rs. 10. The company has debt capital of Rs. 6,00,000 at 10%
rate of interest. The sales of the firm are 3,00,000 units per annum at
selling price of Rs. 5 per unit and the variable cost is Rs. 3 per unit. The
fixed cost amounts to Rs. 2,00,000. The company pays tax at 35%. If
the sales increase by 10%, calculate:
(1) Percentage increase in EPS;
(2) Degree of Operating Leverage at the two levels
(3) Degree of Financial leverage at the two levels.
07
Q.4 (a) What are the essentials of Walter?s Dividend Model? Explain its
shortcomings?
07
(b) From the following selected data, determine the value of firms, P and Q
belonging to the homogenous risk class.
Firm P Firm Q
EBIT Rs. 2,25,000 Rs. 2,25,000
Interest at 15% 75,000 ----
Equity Capitalization
Rate Ke
20%
Corporate Tax 50%
Which of the two firms has an optimal capital structure under the NOI
approach?
07
OR
Q.4 (a) What are the advantages and disadvantages of debenture as an
instrument of financing from the point of view of the company as well
as the investors?
07
(b) Assuming the rate of return expected by investor is 11%; internal rate of
return is 12%; and earnings per share is Rs. 15, calculate price per share
by Gordon Approach method if dividend payout ratio is 10% and 30%.
07
Q.5
XYZ Ltd has the following books values capital structure:
(Rs. in Crore)
Equity Capital (in shares of Rs. 10 each, fully paid up ? at par) 15
12% Preference shares 1
Retained Earnings 20
11.5% Debentures 10
11% Term Loans 12.5
The next expected dividend on equity shares per share is Rs. 3.60; the
dividend per share is expected to grow at the rate of 7 per cent. The
Market price per share is Rs. 40.
Preference stock, redeemable after ten years, is currently selling at Rs.
75 per share.
Debentures, redeemable after six years, are selling at Rs. 80 per
debenture. The income tax rate for the company is 40 per cent.
Required:
Calculate the weighted average cost of capital using:
a) book value proportions and b) market value proportions.
14
OR
Page 3 of 3
Q.5 Nine Gems Ltd has just installed Machine-R at a cost of Rs 2,00,000.
The machine has a five year life with no residual value. The annual
volume of production is estimated at 1,50,000 units, which can be sold
at Rs 6 per unit. Annual operating costs are estimated at Rs 2,00,000
(excluding depreciation) at this output level. Fixed costs are estimated
at Rs 3 per unit for the same level of production.
Nine Gems Ltd has just come across another model called Machine-S
capable of giving the same output at an annual operating cost of Rs
1,80,000 (exclusive of depreciation). There will be no change in fixed
costs. Capital cost of this machine is Rs 2,50,000 and the estimated life
is for 5 years with no residual value.
The company has an offer for sale of Machine-R at Rs 1,00,000. The
cost of dismantling and removal will be Rs 30,000. As the company has
not yet commenced operations, it wants to sell Machine-R and purchase
Machine-S.
Nine Gems Ltd will be a zero-tax company, for seven years in view of
several incentives and allowances available. The cost of capital may be
assumed at 14 per cent.
(i) Advise whether the company should opt for replacement.
(ii) Will there be any change in your view if Machine-R has not been
installed but the company is in the process of selecting one or the other
machine?
14
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This post was last modified on 19 February 2020