Download GTU (Gujarat Technological University) MBA (Master of Business Administration) 2019 Summer 2nd Sem 4529202 Corporate Finance Previous Question Paper

Seat No.: ________ Enrolment No.___________

GUJARAT TECHNOLOGICAL UNIVERSITY

MBA ? SEMESTER -2 ? EXAMINATION ? SUMMER 2019

Subject Code: 4529202 Date:13/05/2019

Subject Name: Corporate Finance

Time: 10:30 AM To 01:30 PM Total Marks: 70

Instructions:

1. Attempt all questions.

2. Make suitable assumptions wherever necessary.

3. Figures to the right indicate full marks.

4. Provide financial tables for PV & FV

Q.

No.

Marks

Q.1 Explain/Solve following concepts of theory/practical

(a) Gross operating cycle and Cash conversion cycle.

(b) IRR v/s NPV

(c) Factoring

(d) Optimum Cash Balance

(e) A bank has offered you annuity of Rs. 1800 for 10 years if you invest

Rs. 12000 today. What rate of Return would you earn?

(f) Mira is borrowing Rs. 500000 to buy a house. If he pays equal

installment for 8 years and 9% is interest rate on outstanding balance,

what is the amount of annual installments.

(g) Rs. 1000 Per value bond bearing coupon rate 12% will mature after 10

years. This bond is currently selling for Rs. 950.what is Current yield

of this bond?

. 14

Q.2 (a) ?Wealth maximization objective is superior to profit Maximization

criteria of financial decision making? Justify.

07

(b) Gujarat Limited?s earnings and dividends have been growing at a rat of

18%per annum. This growth rate is expected to continue for 4 years.

After that the growth rate will fall to 12% for next 4 years. Thereafter, the

growth rate is expected to be 6% forever. If the last dividend per share

was Rs. 2.00 and the investor?s required rate of return on Gujarat?s equity

is 15%, what is the intrinsic value per equity share?

07

OR

(b) A Firm Sales, Variable Cost an Fixed Cost Amount to Rs. 75,00,000, Rs

42,00,000 and Rs. 6,00,000 respectively. It has borrowed Rs. 45,00,000

at 9% and its equity capital total Rs. 55,00,000 (Rs 100 each share).

(Assume no tax). Compute the Following:

(i) ROI

(ii) Does the firm have favorable financial leverage?

(iii) What are the operating, Financial and Combined Leverage?

(iv) EPS

(v)

07

Q.3 (a) Explain the Walter?s Model of Dividend in detail and also state how it is 07

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Page 1 of 4

Seat No.: ________ Enrolment No.___________

GUJARAT TECHNOLOGICAL UNIVERSITY

MBA ? SEMESTER -2 ? EXAMINATION ? SUMMER 2019

Subject Code: 4529202 Date:13/05/2019

Subject Name: Corporate Finance

Time: 10:30 AM To 01:30 PM Total Marks: 70

Instructions:

1. Attempt all questions.

2. Make suitable assumptions wherever necessary.

3. Figures to the right indicate full marks.

4. Provide financial tables for PV & FV

Q.

No.

Marks

Q.1 Explain/Solve following concepts of theory/practical

(a) Gross operating cycle and Cash conversion cycle.

(b) IRR v/s NPV

(c) Factoring

(d) Optimum Cash Balance

(e) A bank has offered you annuity of Rs. 1800 for 10 years if you invest

Rs. 12000 today. What rate of Return would you earn?

(f) Mira is borrowing Rs. 500000 to buy a house. If he pays equal

installment for 8 years and 9% is interest rate on outstanding balance,

what is the amount of annual installments.

(g) Rs. 1000 Per value bond bearing coupon rate 12% will mature after 10

years. This bond is currently selling for Rs. 950.what is Current yield

of this bond?

. 14

Q.2 (a) ?Wealth maximization objective is superior to profit Maximization

criteria of financial decision making? Justify.

07

(b) Gujarat Limited?s earnings and dividends have been growing at a rat of

18%per annum. This growth rate is expected to continue for 4 years.

After that the growth rate will fall to 12% for next 4 years. Thereafter, the

growth rate is expected to be 6% forever. If the last dividend per share

was Rs. 2.00 and the investor?s required rate of return on Gujarat?s equity

is 15%, what is the intrinsic value per equity share?

07

OR

(b) A Firm Sales, Variable Cost an Fixed Cost Amount to Rs. 75,00,000, Rs

42,00,000 and Rs. 6,00,000 respectively. It has borrowed Rs. 45,00,000

at 9% and its equity capital total Rs. 55,00,000 (Rs 100 each share).

(Assume no tax). Compute the Following:

(i) ROI

(ii) Does the firm have favorable financial leverage?

(iii) What are the operating, Financial and Combined Leverage?

(iv) EPS

(v)

07

Q.3 (a) Explain the Walter?s Model of Dividend in detail and also state how it is 07

Page 2 of 4

different from Gordon Dividend Model.

(b) Amazing Auto Ltd. has out sanding 120000 share selling at Rs. 20 per

share. The company hopes to make a net income of Rs. 350000 during

the year ended on 31

st

March,2019. The company is considering to pay

dividend of Rs. 2.00 per share at the end of current year. The

capitalization rate for the risk class of this company has been estimated to

be 15%.Assuming no taxes, Answer the following questions listed below

on the basis of Modigliani and Miller ? Dividend Model:

(i)What will be price of share at the end of 31

St

march 2018.

a. If dividend is paid and

b. If dividend is not paid?

(ii)How many new shares must the company issue if the dividend is paid

and company needs Rs. 740000 for investment Projects during the year?

Compute value of the firm in same case.

07

OR

Q.3 (a) Explain the NI and NOI approach of capital structure theory in detail.

State the point of difference in NOI an MM Model of Capital Structure.

07

(b) Prepare a cash budget for the 3 month that is 30june from the following

information

month Sales Rs Materials

Rs.

Wages Rs. Overhead

Rs.

February 14000 9600 3000 1700

March 15000 9000 3000 1900

April 16000 9200 3200 2000

May 17000 10000 3600 2200

June 18000 10400 4000 2300

? 10% of the sales are in cash

? Credit terms are:

? Debtors: 50% of the credit sales are collected next month and

balance in the following month

? Creditors: for materials -2 months, for wages ? ? months, for

overhead-1/2 month

? Plant and machinery will be installed in February 2009 t a cost of

96000 Rs. The monthly installment of Rs. 2000 is payable from

April onwards

? A dividend of @ 5% on preference share capital of Rs. 200000

will be paid on 1

st

June

? advance to be received for sale of vehicle of Rs. 9000 in June

? Dividend from investment amounting to Rs. 1000 is expected to

be received in June

? Income tax (advance) to be paid in June of rs.2000

? Cash and Bank balance on 1

st

April 2002 to be 6000Rs.

07

Q.4 (a) What do you mean by working capital management? State the concept of

permanent working capital and variable WC. Detail the factors affecting

working capital requirement of the firm point to point.

07

(b) The relevant financial information for Zenon Limited for the year ended

2019 is given below:

07

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Page 1 of 4

Seat No.: ________ Enrolment No.___________

GUJARAT TECHNOLOGICAL UNIVERSITY

MBA ? SEMESTER -2 ? EXAMINATION ? SUMMER 2019

Subject Code: 4529202 Date:13/05/2019

Subject Name: Corporate Finance

Time: 10:30 AM To 01:30 PM Total Marks: 70

Instructions:

1. Attempt all questions.

2. Make suitable assumptions wherever necessary.

3. Figures to the right indicate full marks.

4. Provide financial tables for PV & FV

Q.

No.

Marks

Q.1 Explain/Solve following concepts of theory/practical

(a) Gross operating cycle and Cash conversion cycle.

(b) IRR v/s NPV

(c) Factoring

(d) Optimum Cash Balance

(e) A bank has offered you annuity of Rs. 1800 for 10 years if you invest

Rs. 12000 today. What rate of Return would you earn?

(f) Mira is borrowing Rs. 500000 to buy a house. If he pays equal

installment for 8 years and 9% is interest rate on outstanding balance,

what is the amount of annual installments.

(g) Rs. 1000 Per value bond bearing coupon rate 12% will mature after 10

years. This bond is currently selling for Rs. 950.what is Current yield

of this bond?

. 14

Q.2 (a) ?Wealth maximization objective is superior to profit Maximization

criteria of financial decision making? Justify.

07

(b) Gujarat Limited?s earnings and dividends have been growing at a rat of

18%per annum. This growth rate is expected to continue for 4 years.

After that the growth rate will fall to 12% for next 4 years. Thereafter, the

growth rate is expected to be 6% forever. If the last dividend per share

was Rs. 2.00 and the investor?s required rate of return on Gujarat?s equity

is 15%, what is the intrinsic value per equity share?

07

OR

(b) A Firm Sales, Variable Cost an Fixed Cost Amount to Rs. 75,00,000, Rs

42,00,000 and Rs. 6,00,000 respectively. It has borrowed Rs. 45,00,000

at 9% and its equity capital total Rs. 55,00,000 (Rs 100 each share).

(Assume no tax). Compute the Following:

(i) ROI

(ii) Does the firm have favorable financial leverage?

(iii) What are the operating, Financial and Combined Leverage?

(iv) EPS

(v)

07

Q.3 (a) Explain the Walter?s Model of Dividend in detail and also state how it is 07

Page 2 of 4

different from Gordon Dividend Model.

(b) Amazing Auto Ltd. has out sanding 120000 share selling at Rs. 20 per

share. The company hopes to make a net income of Rs. 350000 during

the year ended on 31

st

March,2019. The company is considering to pay

dividend of Rs. 2.00 per share at the end of current year. The

capitalization rate for the risk class of this company has been estimated to

be 15%.Assuming no taxes, Answer the following questions listed below

on the basis of Modigliani and Miller ? Dividend Model:

(i)What will be price of share at the end of 31

St

march 2018.

a. If dividend is paid and

b. If dividend is not paid?

(ii)How many new shares must the company issue if the dividend is paid

and company needs Rs. 740000 for investment Projects during the year?

Compute value of the firm in same case.

07

OR

Q.3 (a) Explain the NI and NOI approach of capital structure theory in detail.

State the point of difference in NOI an MM Model of Capital Structure.

07

(b) Prepare a cash budget for the 3 month that is 30june from the following

information

month Sales Rs Materials

Rs.

Wages Rs. Overhead

Rs.

February 14000 9600 3000 1700

March 15000 9000 3000 1900

April 16000 9200 3200 2000

May 17000 10000 3600 2200

June 18000 10400 4000 2300

? 10% of the sales are in cash

? Credit terms are:

? Debtors: 50% of the credit sales are collected next month and

balance in the following month

? Creditors: for materials -2 months, for wages ? ? months, for

overhead-1/2 month

? Plant and machinery will be installed in February 2009 t a cost of

96000 Rs. The monthly installment of Rs. 2000 is payable from

April onwards

? A dividend of @ 5% on preference share capital of Rs. 200000

will be paid on 1

st

June

? advance to be received for sale of vehicle of Rs. 9000 in June

? Dividend from investment amounting to Rs. 1000 is expected to

be received in June

? Income tax (advance) to be paid in June of rs.2000

? Cash and Bank balance on 1

st

April 2002 to be 6000Rs.

07

Q.4 (a) What do you mean by working capital management? State the concept of

permanent working capital and variable WC. Detail the factors affecting

working capital requirement of the firm point to point.

07

(b) The relevant financial information for Zenon Limited for the year ended

2019 is given below:

07

Page 3 of 4

Profit and Loss account

data

(Rs. In

Millions)

Sales 80

Cost of Goods sold 56

Balance sheet data

Beginning of

2019 (Rs. In

Millions)

End of 2019 (Rs.

In Millions)

Inventory 9 12

Accounts Receivables 12 16

Accounts Payables 7 10

What is the length of Operating Cycle? What is the Length of Cash

Cycle? Assume 365 days to a year.

OR

Q.4 (a) What do you mean by leverage? Explain the operating leverage, financial

leverage and combined leverage in detail.

07

(b) A Company has on its books the following amounts and specific cost of

each type of capital.

Types of Capital

(sources)

Book Value

(Rs.

Market

Value (Rs.)

Specific Cost

(%) after tax

Debentures 400000 380000 5

Preference share

capital 100000 110000 8

Equity share capital 600000

1200000

15

Retained Earnings 200000 13

Total 1300000 1690000

Determine the weighted average cost of capital using (i) book value

weights and (ii) Market value weights. How they are different?

07

Q.5

A Company is Considering an investment proposal to install new milling

control equipments at a cost of Rs. 50000. The facility has a life

expectancy of 5 years and no salvage value. The tax rate is 35%. Assume

the firm uses straight line method of depreciation and the same is allowed

for tax purposes. The estimated sash flow before depreciation and tax(

CFBT) from the investment proposal are as follows :

Year CFBT (Rs.)

1 10000

2 10692

3 12769

4 13460

5 20385

(a) From above information Compute (i) Payback Period and (ii) Average

rate of return on above investments.

07

(b) If company cost of Capital of 10%, what will be NPV and PI of the

investment proposal and what you advise, whether the company should

undertake above investment or not.

07

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Page 1 of 4

Seat No.: ________ Enrolment No.___________

GUJARAT TECHNOLOGICAL UNIVERSITY

MBA ? SEMESTER -2 ? EXAMINATION ? SUMMER 2019

Subject Code: 4529202 Date:13/05/2019

Subject Name: Corporate Finance

Time: 10:30 AM To 01:30 PM Total Marks: 70

Instructions:

1. Attempt all questions.

2. Make suitable assumptions wherever necessary.

3. Figures to the right indicate full marks.

4. Provide financial tables for PV & FV

Q.

No.

Marks

Q.1 Explain/Solve following concepts of theory/practical

(a) Gross operating cycle and Cash conversion cycle.

(b) IRR v/s NPV

(c) Factoring

(d) Optimum Cash Balance

(e) A bank has offered you annuity of Rs. 1800 for 10 years if you invest

Rs. 12000 today. What rate of Return would you earn?

(f) Mira is borrowing Rs. 500000 to buy a house. If he pays equal

installment for 8 years and 9% is interest rate on outstanding balance,

what is the amount of annual installments.

(g) Rs. 1000 Per value bond bearing coupon rate 12% will mature after 10

years. This bond is currently selling for Rs. 950.what is Current yield

of this bond?

. 14

Q.2 (a) ?Wealth maximization objective is superior to profit Maximization

criteria of financial decision making? Justify.

07

(b) Gujarat Limited?s earnings and dividends have been growing at a rat of

18%per annum. This growth rate is expected to continue for 4 years.

After that the growth rate will fall to 12% for next 4 years. Thereafter, the

growth rate is expected to be 6% forever. If the last dividend per share

was Rs. 2.00 and the investor?s required rate of return on Gujarat?s equity

is 15%, what is the intrinsic value per equity share?

07

OR

(b) A Firm Sales, Variable Cost an Fixed Cost Amount to Rs. 75,00,000, Rs

42,00,000 and Rs. 6,00,000 respectively. It has borrowed Rs. 45,00,000

at 9% and its equity capital total Rs. 55,00,000 (Rs 100 each share).

(Assume no tax). Compute the Following:

(i) ROI

(ii) Does the firm have favorable financial leverage?

(iii) What are the operating, Financial and Combined Leverage?

(iv) EPS

(v)

07

Q.3 (a) Explain the Walter?s Model of Dividend in detail and also state how it is 07

Page 2 of 4

different from Gordon Dividend Model.

(b) Amazing Auto Ltd. has out sanding 120000 share selling at Rs. 20 per

share. The company hopes to make a net income of Rs. 350000 during

the year ended on 31

st

March,2019. The company is considering to pay

dividend of Rs. 2.00 per share at the end of current year. The

capitalization rate for the risk class of this company has been estimated to

be 15%.Assuming no taxes, Answer the following questions listed below

on the basis of Modigliani and Miller ? Dividend Model:

(i)What will be price of share at the end of 31

St

march 2018.

a. If dividend is paid and

b. If dividend is not paid?

(ii)How many new shares must the company issue if the dividend is paid

and company needs Rs. 740000 for investment Projects during the year?

Compute value of the firm in same case.

07

OR

Q.3 (a) Explain the NI and NOI approach of capital structure theory in detail.

State the point of difference in NOI an MM Model of Capital Structure.

07

(b) Prepare a cash budget for the 3 month that is 30june from the following

information

month Sales Rs Materials

Rs.

Wages Rs. Overhead

Rs.

February 14000 9600 3000 1700

March 15000 9000 3000 1900

April 16000 9200 3200 2000

May 17000 10000 3600 2200

June 18000 10400 4000 2300

? 10% of the sales are in cash

? Credit terms are:

? Debtors: 50% of the credit sales are collected next month and

balance in the following month

? Creditors: for materials -2 months, for wages ? ? months, for

overhead-1/2 month

? Plant and machinery will be installed in February 2009 t a cost of

96000 Rs. The monthly installment of Rs. 2000 is payable from

April onwards

? A dividend of @ 5% on preference share capital of Rs. 200000

will be paid on 1

st

June

? advance to be received for sale of vehicle of Rs. 9000 in June

? Dividend from investment amounting to Rs. 1000 is expected to

be received in June

? Income tax (advance) to be paid in June of rs.2000

? Cash and Bank balance on 1

st

April 2002 to be 6000Rs.

07

Q.4 (a) What do you mean by working capital management? State the concept of

permanent working capital and variable WC. Detail the factors affecting

working capital requirement of the firm point to point.

07

(b) The relevant financial information for Zenon Limited for the year ended

2019 is given below:

07

Page 3 of 4

Profit and Loss account

data

(Rs. In

Millions)

Sales 80

Cost of Goods sold 56

Balance sheet data

Beginning of

2019 (Rs. In

Millions)

End of 2019 (Rs.

In Millions)

Inventory 9 12

Accounts Receivables 12 16

Accounts Payables 7 10

What is the length of Operating Cycle? What is the Length of Cash

Cycle? Assume 365 days to a year.

OR

Q.4 (a) What do you mean by leverage? Explain the operating leverage, financial

leverage and combined leverage in detail.

07

(b) A Company has on its books the following amounts and specific cost of

each type of capital.

Types of Capital

(sources)

Book Value

(Rs.

Market

Value (Rs.)

Specific Cost

(%) after tax

Debentures 400000 380000 5

Preference share

capital 100000 110000 8

Equity share capital 600000

1200000

15

Retained Earnings 200000 13

Total 1300000 1690000

Determine the weighted average cost of capital using (i) book value

weights and (ii) Market value weights. How they are different?

07

Q.5

A Company is Considering an investment proposal to install new milling

control equipments at a cost of Rs. 50000. The facility has a life

expectancy of 5 years and no salvage value. The tax rate is 35%. Assume

the firm uses straight line method of depreciation and the same is allowed

for tax purposes. The estimated sash flow before depreciation and tax(

CFBT) from the investment proposal are as follows :

Year CFBT (Rs.)

1 10000

2 10692

3 12769

4 13460

5 20385

(a) From above information Compute (i) Payback Period and (ii) Average

rate of return on above investments.

07

(b) If company cost of Capital of 10%, what will be NPV and PI of the

investment proposal and what you advise, whether the company should

undertake above investment or not.

07

Page 4 of 4

OR

Q.5 (a) If company has predetermined cut off rate (hurdle rate) 10% what is your

decision, whether company should undertake investment to maximize the

wealth of shareholders or not?

07

(b)

If company?s cost of capital is 12%, Compute Profitability index and

state your decision on acceptability of the investment proposals

07

*************

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This post was last modified on 19 February 2020