Download GTU (Gujarat Technological University) MBA (Master of Business Administration) 2018 Winter 2nd Sem 3529203 Financial Management Previous Question Paper

GUJARAT TECHNOLOGICAL UNIVERSITY

MBA ? SEMESTER 2 ? EXAMINATION ? WINTER 2018

Subject Code: 3529203 Date: 26/12/2018

Subject Name: FINANCIAL MANAGEMENT

Time: 2.30 PM to 5:30 PM Total Marks: 70

Instructions:

1. Attempt all questions.

2. Make suitable assumptions wherever necessary.

3. Figures to the right indicate full marks.

Q.

No.

Marks

Q.1 Explain following Concepts:

(a) Floatation Cost

(b) Yield to Call (YTC)

(c) Private Equity (PE)

(d) Green-Shoe Option

(e) Risk Premium

(f) Letter of Credit

(g) Operating Cycle

14

Q.2 (a) ?Financial Management is in many ways an integral part of the jobs

of managers? Explain.

07

(b) i) An Investor deposits Rs. 50000 at the end of each year for 5 years

at the rate of 8 percent p.a. interest, compounded half-yearly. Find

out the future value of the annuity.

ii) You have borrowed a 3 year loan of Rs. 10000 at 9 percent p.a.

from your employer to buy a motorcycle. If your employer requires

you to pay in three equal end-of-year repayments what will be an

installment amount? Prepare loan amortization schedule.

07

OR

(b) The market price of a Rs. 1000 par value bond carrying a coupon

rate of 14 percent and maturing after 5 years in Rs. 1050. What is

the yield to maturity (YTM) on this bond? What will be the realized

yield to maturity if the re-investment rate is 12 percent p.a.?

07

Q.3 (a) Explain the Modigliani Miller?s Proposition I and Proposition II.

Illustrate how the arbitrage mechanism works in MM hypothesis

with help of an example.

07

(b) The installed capacity of an organisation is 30000 units. The actual

exploited capacity is 25000 units. Selling price per unit is Rs. 10

each and variable cost is Rs. 6 per unit. Compute the Operating

Leverage in each of the following situation.

07

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Seat No.: ________ Enrolment No.___________

GUJARAT TECHNOLOGICAL UNIVERSITY

MBA ? SEMESTER 2 ? EXAMINATION ? WINTER 2018

Subject Code: 3529203 Date: 26/12/2018

Subject Name: FINANCIAL MANAGEMENT

Time: 2.30 PM to 5:30 PM Total Marks: 70

Instructions:

1. Attempt all questions.

2. Make suitable assumptions wherever necessary.

3. Figures to the right indicate full marks.

Q.

No.

Marks

Q.1 Explain following Concepts:

(a) Floatation Cost

(b) Yield to Call (YTC)

(c) Private Equity (PE)

(d) Green-Shoe Option

(e) Risk Premium

(f) Letter of Credit

(g) Operating Cycle

14

Q.2 (a) ?Financial Management is in many ways an integral part of the jobs

of managers? Explain.

07

(b) i) An Investor deposits Rs. 50000 at the end of each year for 5 years

at the rate of 8 percent p.a. interest, compounded half-yearly. Find

out the future value of the annuity.

ii) You have borrowed a 3 year loan of Rs. 10000 at 9 percent p.a.

from your employer to buy a motorcycle. If your employer requires

you to pay in three equal end-of-year repayments what will be an

installment amount? Prepare loan amortization schedule.

07

OR

(b) The market price of a Rs. 1000 par value bond carrying a coupon

rate of 14 percent and maturing after 5 years in Rs. 1050. What is

the yield to maturity (YTM) on this bond? What will be the realized

yield to maturity if the re-investment rate is 12 percent p.a.?

07

Q.3 (a) Explain the Modigliani Miller?s Proposition I and Proposition II.

Illustrate how the arbitrage mechanism works in MM hypothesis

with help of an example.

07

(b) The installed capacity of an organisation is 30000 units. The actual

exploited capacity is 25000 units. Selling price per unit is Rs. 10

each and variable cost is Rs. 6 per unit. Compute the Operating

Leverage in each of the following situation.

07

(i) When Fixed cost is 25000

(ii) When Fixed cost is 55000

(iii) When Fixed cost is 75000

OR

Q.3 (a) You are the CFO of XYZ Ltd. Your company is planning to design

the dividend policy. You have been asked to explain the factors

influencing the dividend policy for your company.

07

(b) A company has a total investment of Rs. 500,000 in assets and

500,000 outstanding ordinary shares at Rs. 10 per share (par value).

It earns a rate of 15 percent on its investment, and has a policy of

retaining 50 percent of its earnings. If the appropriate discount rate

of the firm is 10 percent, determine the price of its share using

Gordon?s model when Earning Per Share (EPS) is Rs.1.50.

What shall happen to the price of the share if the company has a

Dividend payout ratio of 80 percent or 20 percent?

07

Q.4 (a) Discuss various major sources of long term finance of an

organisation.

07

(b) The present credit terms of Satvika Ltd are 1/10 net 30. Its sales are

Rs.25 million, its average collection period is 24 days and its

variable cost to sales ratio is 0.80 and its cost of funds is 15%. The

proportion of sales in which customers currently take discount is

0.3. The company is considering relaxing its discount terms to 2/10

net 30. Such relaxation is expected to increase the sales by Rs. 2.5

million, reduce the average collection period to 16 days and

increase the proportion of discount sales to 0.7. What will be the

effect of relaxing the discount policy on residual income? The tax

rate of the firm is 50 percent.

07

OR

Q.4 (a) Explain the factors which determine the amount of working capital

in a business.

07

(b) Sujoy Limited is evaluating an expansion project that is expected to

cost Rs. 10 Million and generate an annual after tax cash flow of

Rs. 2 Million for the next 10 years. The tax rate for the company is

35 percent. Sujoy Limited has debt equity ratio of 1:1. Its cost of

equity is 16.9 percent whereas its pre-tax cost of debt is 14 percent.

The floatation cost of equity is 12 percent whereas the floatation

cost of debt is 2 percent. Calculate the Net Present Value (NPV) of

the project after taking into account the floatation cost.

07

Q.5 Khatari Ltd. is in Equipment manufacturing business since 2001. It

supplies to the equipment manufacturer as well as the replacement

market. Recently company has received two projects ?X? and ?Y?;

and company will consider either of these projects in the beginning

of the year. Depreciation is provided under straight line method in

the firm. Following are the details of the two projects ?X? and ?Y?.

FirstRanker.com - FirstRanker's Choice

Seat No.: ________ Enrolment No.___________

GUJARAT TECHNOLOGICAL UNIVERSITY

MBA ? SEMESTER 2 ? EXAMINATION ? WINTER 2018

Subject Code: 3529203 Date: 26/12/2018

Subject Name: FINANCIAL MANAGEMENT

Time: 2.30 PM to 5:30 PM Total Marks: 70

Instructions:

1. Attempt all questions.

2. Make suitable assumptions wherever necessary.

3. Figures to the right indicate full marks.

Q.

No.

Marks

Q.1 Explain following Concepts:

(a) Floatation Cost

(b) Yield to Call (YTC)

(c) Private Equity (PE)

(d) Green-Shoe Option

(e) Risk Premium

(f) Letter of Credit

(g) Operating Cycle

14

Q.2 (a) ?Financial Management is in many ways an integral part of the jobs

of managers? Explain.

07

(b) i) An Investor deposits Rs. 50000 at the end of each year for 5 years

at the rate of 8 percent p.a. interest, compounded half-yearly. Find

out the future value of the annuity.

ii) You have borrowed a 3 year loan of Rs. 10000 at 9 percent p.a.

from your employer to buy a motorcycle. If your employer requires

you to pay in three equal end-of-year repayments what will be an

installment amount? Prepare loan amortization schedule.

07

OR

(b) The market price of a Rs. 1000 par value bond carrying a coupon

rate of 14 percent and maturing after 5 years in Rs. 1050. What is

the yield to maturity (YTM) on this bond? What will be the realized

yield to maturity if the re-investment rate is 12 percent p.a.?

07

Q.3 (a) Explain the Modigliani Miller?s Proposition I and Proposition II.

Illustrate how the arbitrage mechanism works in MM hypothesis

with help of an example.

07

(b) The installed capacity of an organisation is 30000 units. The actual

exploited capacity is 25000 units. Selling price per unit is Rs. 10

each and variable cost is Rs. 6 per unit. Compute the Operating

Leverage in each of the following situation.

07

(i) When Fixed cost is 25000

(ii) When Fixed cost is 55000

(iii) When Fixed cost is 75000

OR

Q.3 (a) You are the CFO of XYZ Ltd. Your company is planning to design

the dividend policy. You have been asked to explain the factors

influencing the dividend policy for your company.

07

(b) A company has a total investment of Rs. 500,000 in assets and

500,000 outstanding ordinary shares at Rs. 10 per share (par value).

It earns a rate of 15 percent on its investment, and has a policy of

retaining 50 percent of its earnings. If the appropriate discount rate

of the firm is 10 percent, determine the price of its share using

Gordon?s model when Earning Per Share (EPS) is Rs.1.50.

What shall happen to the price of the share if the company has a

Dividend payout ratio of 80 percent or 20 percent?

07

Q.4 (a) Discuss various major sources of long term finance of an

organisation.

07

(b) The present credit terms of Satvika Ltd are 1/10 net 30. Its sales are

Rs.25 million, its average collection period is 24 days and its

variable cost to sales ratio is 0.80 and its cost of funds is 15%. The

proportion of sales in which customers currently take discount is

0.3. The company is considering relaxing its discount terms to 2/10

net 30. Such relaxation is expected to increase the sales by Rs. 2.5

million, reduce the average collection period to 16 days and

increase the proportion of discount sales to 0.7. What will be the

effect of relaxing the discount policy on residual income? The tax

rate of the firm is 50 percent.

07

OR

Q.4 (a) Explain the factors which determine the amount of working capital

in a business.

07

(b) Sujoy Limited is evaluating an expansion project that is expected to

cost Rs. 10 Million and generate an annual after tax cash flow of

Rs. 2 Million for the next 10 years. The tax rate for the company is

35 percent. Sujoy Limited has debt equity ratio of 1:1. Its cost of

equity is 16.9 percent whereas its pre-tax cost of debt is 14 percent.

The floatation cost of equity is 12 percent whereas the floatation

cost of debt is 2 percent. Calculate the Net Present Value (NPV) of

the project after taking into account the floatation cost.

07

Q.5 Khatari Ltd. is in Equipment manufacturing business since 2001. It

supplies to the equipment manufacturer as well as the replacement

market. Recently company has received two projects ?X? and ?Y?;

and company will consider either of these projects in the beginning

of the year. Depreciation is provided under straight line method in

the firm. Following are the details of the two projects ?X? and ?Y?.

Project X Project Y

Cost of the Investment Rs. 25000 Rs. 30000

Life 5 Years 6 Years

Net Income (After depreciation and

tax)

2011 600 3800

2012 1000 4500

2013 2500 5000

2014 3000 4500

2015 3500 5500

2016 - 6000

(a) Calculate Net Present Value (NPV) of Project X and Y; assuming

the rate of return of 10 percent per annum.

07

(b) Calculate Average Rate of Return (ARR) of Project X and Y. 07

OR

(a) Calculate Profitability Index of the Project X and Y; assuming the

rate of return of 10 percent per annum.

07

(b) Calculate Payback Period of the Project X and Y. 07

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This post was last modified on 19 February 2020