Download GTU MBA 2018 Winter 3rs Sem 3539221 Strategic Financial Management Question Paper

Page 1 of 5

Seat No.: ________ Enrolment No.___________

GUJARAT TECHNOLOGICAL UNIVERSITY
MBA ? SEMESTER (3) ? EXAMINATION ? WINTER 2018

Subject Code: 3539221 Date:07/12/2018
Subject Name: Strategic Financial Management
Time: 10:30am To 01:30pm Total Marks: 70
Instructions:
1. Attempt all questions.
2. Make suitable assumptions wherever necessary.
3. Figures to the right indicate full marks.

Q.1 Define Following terms : ( each of two marks)
(a) Zero Date
(b) Financial Breakeven point
(c) Intrinsic Value
(d) Business Risk & Financial Risk
(f) Dividend Payout Ratio
(g) Reverse Merger

14
Q.2 (a) Define ?Financial Forecasting?. Briefly discuss the techniques of
financial forecasting.
07
(b) A company has estimated the unit variable cost of a product to
be Rs.10, and the selling
price is Rs. 15 per unit. Budgeted sales for the year are 20,000
units. Estimated fixed cost are as follows:
Fixed
Costs p.a.
(Rs)
50,000 60,000 70,000 80,000 90,000
Probability 0.1 0.3 0.3 0.2 0.1
What is the probability that the company will equal or exceeds
its target profit of Rs. 25,000 for the year?
07

OR
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Page 1 of 5

Seat No.: ________ Enrolment No.___________

GUJARAT TECHNOLOGICAL UNIVERSITY
MBA ? SEMESTER (3) ? EXAMINATION ? WINTER 2018

Subject Code: 3539221 Date:07/12/2018
Subject Name: Strategic Financial Management
Time: 10:30am To 01:30pm Total Marks: 70
Instructions:
1. Attempt all questions.
2. Make suitable assumptions wherever necessary.
3. Figures to the right indicate full marks.

Q.1 Define Following terms : ( each of two marks)
(a) Zero Date
(b) Financial Breakeven point
(c) Intrinsic Value
(d) Business Risk & Financial Risk
(f) Dividend Payout Ratio
(g) Reverse Merger

14
Q.2 (a) Define ?Financial Forecasting?. Briefly discuss the techniques of
financial forecasting.
07
(b) A company has estimated the unit variable cost of a product to
be Rs.10, and the selling
price is Rs. 15 per unit. Budgeted sales for the year are 20,000
units. Estimated fixed cost are as follows:
Fixed
Costs p.a.
(Rs)
50,000 60,000 70,000 80,000 90,000
Probability 0.1 0.3 0.3 0.2 0.1
What is the probability that the company will equal or exceeds
its target profit of Rs. 25,000 for the year?
07

OR
Page 2 of 5

(b) The global manufacturing company ltd. Is considering an
investment in one of the two mutually exclusive proposals-
project X and Y, which requires cash outlay of Rs, 3,40,000 and
3,30,000 respectively. The certainity equivalent approach is
used in incorporating risk in capital budgeting decision. The
current yield on government is 8% and this be used as the risk
less rate. The expected net cash flow and their certainity-
equivalents are as follows :
Project- X Project-Y
Year end Cash flow
(Rs.)
C.E. Cash
flow(Rs.)
C.E.
1 1,80,000 0.8 1,80,000 0.9
2 2,00,000 0.7 1,80,000 0.8
3 2,00,000 0.5 2,00,000 0.7
Present value factor of Rs. 1 discounted at 8% at the end of the
year1,2,and 3 are 0.926,0.857,0.794 respectively.
Required , which project should be accepted?

Required which project should be accepted?

07

Q.3 (a) Suppose you are a project manager of Ford ltd, Ford wants to
start its new unit in Gujarat, As a project manager you were
given the task of preparing feasibility study report for the same.
Discuss the factors you need to consider while preparing
feasibility report.
07
(b) Excess company?s earning per share are Rs. 20. The company is
considering to adopt payout ratio of 20%, 40% or 60%. What
will be the market values of the company?s share using walter?s
model.
I. If company?s retain earning earn return of 20% and cost
of capital of the company is 10% and
II. If the return of retained earning of company is 15% and
cost of capital of the company is 10%?
07
OR
Q.3 (a) Explain the factors which determine the dividend policy of a
company.
07
(b) Mr. Akshat holds 12,000 equity shares in SKP private Ltd. , the
nominal and paid up share capital of which consist of:
1. 40,000 equity shares of Rs. 1 each and
2. 10,000, 8% preference shares of Rs. 1 each
It is ascertained that :
I. The normal annual profit of such a company is Rs.
12,000.
II. The normal rate of transfer to general reserve is 10%.
III. The normal return by way of dividend on the paid up
value of equity share capital for the type of business
carried on by the company is 15%.
Based on above parameter calculate the valuation of Mr.
Akshat?s share holding in SKP pvt.ltd.
07

Q.4 (a) What is corporate restructuring ? describe various techniques of
corporate restructuring .

07
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Page 1 of 5

Seat No.: ________ Enrolment No.___________

GUJARAT TECHNOLOGICAL UNIVERSITY
MBA ? SEMESTER (3) ? EXAMINATION ? WINTER 2018

Subject Code: 3539221 Date:07/12/2018
Subject Name: Strategic Financial Management
Time: 10:30am To 01:30pm Total Marks: 70
Instructions:
1. Attempt all questions.
2. Make suitable assumptions wherever necessary.
3. Figures to the right indicate full marks.

Q.1 Define Following terms : ( each of two marks)
(a) Zero Date
(b) Financial Breakeven point
(c) Intrinsic Value
(d) Business Risk & Financial Risk
(f) Dividend Payout Ratio
(g) Reverse Merger

14
Q.2 (a) Define ?Financial Forecasting?. Briefly discuss the techniques of
financial forecasting.
07
(b) A company has estimated the unit variable cost of a product to
be Rs.10, and the selling
price is Rs. 15 per unit. Budgeted sales for the year are 20,000
units. Estimated fixed cost are as follows:
Fixed
Costs p.a.
(Rs)
50,000 60,000 70,000 80,000 90,000
Probability 0.1 0.3 0.3 0.2 0.1
What is the probability that the company will equal or exceeds
its target profit of Rs. 25,000 for the year?
07

OR
Page 2 of 5

(b) The global manufacturing company ltd. Is considering an
investment in one of the two mutually exclusive proposals-
project X and Y, which requires cash outlay of Rs, 3,40,000 and
3,30,000 respectively. The certainity equivalent approach is
used in incorporating risk in capital budgeting decision. The
current yield on government is 8% and this be used as the risk
less rate. The expected net cash flow and their certainity-
equivalents are as follows :
Project- X Project-Y
Year end Cash flow
(Rs.)
C.E. Cash
flow(Rs.)
C.E.
1 1,80,000 0.8 1,80,000 0.9
2 2,00,000 0.7 1,80,000 0.8
3 2,00,000 0.5 2,00,000 0.7
Present value factor of Rs. 1 discounted at 8% at the end of the
year1,2,and 3 are 0.926,0.857,0.794 respectively.
Required , which project should be accepted?

Required which project should be accepted?

07

Q.3 (a) Suppose you are a project manager of Ford ltd, Ford wants to
start its new unit in Gujarat, As a project manager you were
given the task of preparing feasibility study report for the same.
Discuss the factors you need to consider while preparing
feasibility report.
07
(b) Excess company?s earning per share are Rs. 20. The company is
considering to adopt payout ratio of 20%, 40% or 60%. What
will be the market values of the company?s share using walter?s
model.
I. If company?s retain earning earn return of 20% and cost
of capital of the company is 10% and
II. If the return of retained earning of company is 15% and
cost of capital of the company is 10%?
07
OR
Q.3 (a) Explain the factors which determine the dividend policy of a
company.
07
(b) Mr. Akshat holds 12,000 equity shares in SKP private Ltd. , the
nominal and paid up share capital of which consist of:
1. 40,000 equity shares of Rs. 1 each and
2. 10,000, 8% preference shares of Rs. 1 each
It is ascertained that :
I. The normal annual profit of such a company is Rs.
12,000.
II. The normal rate of transfer to general reserve is 10%.
III. The normal return by way of dividend on the paid up
value of equity share capital for the type of business
carried on by the company is 15%.
Based on above parameter calculate the valuation of Mr.
Akshat?s share holding in SKP pvt.ltd.
07

Q.4 (a) What is corporate restructuring ? describe various techniques of
corporate restructuring .

07
Page 3 of 5

(b) Calculate the degree of operating leverage, financial leverage
and combined leverage based on following information :
Particular Firm-A Firm -B Firm -C
Output (units) 60,000 15,000 1,00,000
Fixed cost 7,000 14,000 1,500
Variable Cost 0.2 1.5 0.02
Interest on
borrowed fund
4,000 8,000 ----
Selling Price per
unit
0.60 5.00 0.10

07
OR
Q.4 (a)
Define Industrial sickness and discuss the causes of industrial
sickness.

07
(b) The following particulars are available in respect of a corporate
(i) profit after taxs (for the current year) Rs. 30 crore which
include extraordinary gain of Rs. 8 crore(ii) to maintain sales,
crore(iii) capitalization rate applicable to business to which
corporate belongs is 12 percent.
From the above information, determine the value of business,
value of equity( assume total external liabilities of Rs. 50
crore)nand price per equity share( assume 1 crore equity shares
of Rs. 100 each outstanding) based on the capitalization
method. Assume tax rate of 40 percent.
07
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Page 1 of 5

Seat No.: ________ Enrolment No.___________

GUJARAT TECHNOLOGICAL UNIVERSITY
MBA ? SEMESTER (3) ? EXAMINATION ? WINTER 2018

Subject Code: 3539221 Date:07/12/2018
Subject Name: Strategic Financial Management
Time: 10:30am To 01:30pm Total Marks: 70
Instructions:
1. Attempt all questions.
2. Make suitable assumptions wherever necessary.
3. Figures to the right indicate full marks.

Q.1 Define Following terms : ( each of two marks)
(a) Zero Date
(b) Financial Breakeven point
(c) Intrinsic Value
(d) Business Risk & Financial Risk
(f) Dividend Payout Ratio
(g) Reverse Merger

14
Q.2 (a) Define ?Financial Forecasting?. Briefly discuss the techniques of
financial forecasting.
07
(b) A company has estimated the unit variable cost of a product to
be Rs.10, and the selling
price is Rs. 15 per unit. Budgeted sales for the year are 20,000
units. Estimated fixed cost are as follows:
Fixed
Costs p.a.
(Rs)
50,000 60,000 70,000 80,000 90,000
Probability 0.1 0.3 0.3 0.2 0.1
What is the probability that the company will equal or exceeds
its target profit of Rs. 25,000 for the year?
07

OR
Page 2 of 5

(b) The global manufacturing company ltd. Is considering an
investment in one of the two mutually exclusive proposals-
project X and Y, which requires cash outlay of Rs, 3,40,000 and
3,30,000 respectively. The certainity equivalent approach is
used in incorporating risk in capital budgeting decision. The
current yield on government is 8% and this be used as the risk
less rate. The expected net cash flow and their certainity-
equivalents are as follows :
Project- X Project-Y
Year end Cash flow
(Rs.)
C.E. Cash
flow(Rs.)
C.E.
1 1,80,000 0.8 1,80,000 0.9
2 2,00,000 0.7 1,80,000 0.8
3 2,00,000 0.5 2,00,000 0.7
Present value factor of Rs. 1 discounted at 8% at the end of the
year1,2,and 3 are 0.926,0.857,0.794 respectively.
Required , which project should be accepted?

Required which project should be accepted?

07

Q.3 (a) Suppose you are a project manager of Ford ltd, Ford wants to
start its new unit in Gujarat, As a project manager you were
given the task of preparing feasibility study report for the same.
Discuss the factors you need to consider while preparing
feasibility report.
07
(b) Excess company?s earning per share are Rs. 20. The company is
considering to adopt payout ratio of 20%, 40% or 60%. What
will be the market values of the company?s share using walter?s
model.
I. If company?s retain earning earn return of 20% and cost
of capital of the company is 10% and
II. If the return of retained earning of company is 15% and
cost of capital of the company is 10%?
07
OR
Q.3 (a) Explain the factors which determine the dividend policy of a
company.
07
(b) Mr. Akshat holds 12,000 equity shares in SKP private Ltd. , the
nominal and paid up share capital of which consist of:
1. 40,000 equity shares of Rs. 1 each and
2. 10,000, 8% preference shares of Rs. 1 each
It is ascertained that :
I. The normal annual profit of such a company is Rs.
12,000.
II. The normal rate of transfer to general reserve is 10%.
III. The normal return by way of dividend on the paid up
value of equity share capital for the type of business
carried on by the company is 15%.
Based on above parameter calculate the valuation of Mr.
Akshat?s share holding in SKP pvt.ltd.
07

Q.4 (a) What is corporate restructuring ? describe various techniques of
corporate restructuring .

07
Page 3 of 5

(b) Calculate the degree of operating leverage, financial leverage
and combined leverage based on following information :
Particular Firm-A Firm -B Firm -C
Output (units) 60,000 15,000 1,00,000
Fixed cost 7,000 14,000 1,500
Variable Cost 0.2 1.5 0.02
Interest on
borrowed fund
4,000 8,000 ----
Selling Price per
unit
0.60 5.00 0.10

07
OR
Q.4 (a)
Define Industrial sickness and discuss the causes of industrial
sickness.

07
(b) The following particulars are available in respect of a corporate
(i) profit after taxs (for the current year) Rs. 30 crore which
include extraordinary gain of Rs. 8 crore(ii) to maintain sales,
crore(iii) capitalization rate applicable to business to which
corporate belongs is 12 percent.
From the above information, determine the value of business,
value of equity( assume total external liabilities of Rs. 50
crore)nand price per equity share( assume 1 crore equity shares
of Rs. 100 each outstanding) based on the capitalization
method. Assume tax rate of 40 percent.
07
Page 4 of 5

Q.5

XYZ company is planning to expand its assets by 50 percent.
All financing for this expansion will come from external
sources. The expansion will generate additional sales of Rs. 3
lakh with a return of 25 per cent on sales before interest and
taxes. The finance department of the company has submitted the
following plans for consideration of the board.
Plan-I: Issue of 10% debentures
Plan-II: Issues of 10% debentures for half the required amount
and balance in equity shares to be at 25 percent premium.
Plan-III: Issue of equity shares at 25 percent premium.
Balance sheet of the company as on 31
st
march
Liabilities Amount Assets Amount
Equity capital(Rs.
10 per share)
4,00,000 Total Assets 12,00,000
8% debentures 3,00,000
Retained Earnings 2,00,000
Current Liabilities 3,00,000
12,00,000 12,00,000

Income statement for the year ending 31
st
march
Particular Amount
Sales 19,00,000
Operating Cost 16,00,000
EBIT 3,00,000
Interest 24,000
Earning After Tax 2,76,000
Taxes 96,600
EAT 1,79,400
EPS 4.48
I. Determine the number of equity shares that will be
issued if plan 3 is adopted.
II. Determine indifference point between(i) plan 1 and
2(ii) Plan 1 and plan 3, and (iii) plans 2 and 3.
III. Assume that the price earning ratio is expected to
remain unchanged at 8 if plan 3 is adopted, but is
likely to drop to 6 if either plan 1 or 2 is used to
finance the expansion. Determine the expected
market price of the shares in each of the situation.
14

OR
Q.5 The balance sheet of Surya ltd as on march 31,2010 is as
follows :
Particular Amount
Sources of fund :
Share capital 200
Reserve & surplus 140
Long term loans 360
Total 700
Application of fund :
Fixed asset (net block) 500
Current assets, loans & provisions
Inventories 300
14
FirstRanker.com - FirstRanker's Choice
Page 1 of 5

Seat No.: ________ Enrolment No.___________

GUJARAT TECHNOLOGICAL UNIVERSITY
MBA ? SEMESTER (3) ? EXAMINATION ? WINTER 2018

Subject Code: 3539221 Date:07/12/2018
Subject Name: Strategic Financial Management
Time: 10:30am To 01:30pm Total Marks: 70
Instructions:
1. Attempt all questions.
2. Make suitable assumptions wherever necessary.
3. Figures to the right indicate full marks.

Q.1 Define Following terms : ( each of two marks)
(a) Zero Date
(b) Financial Breakeven point
(c) Intrinsic Value
(d) Business Risk & Financial Risk
(f) Dividend Payout Ratio
(g) Reverse Merger

14
Q.2 (a) Define ?Financial Forecasting?. Briefly discuss the techniques of
financial forecasting.
07
(b) A company has estimated the unit variable cost of a product to
be Rs.10, and the selling
price is Rs. 15 per unit. Budgeted sales for the year are 20,000
units. Estimated fixed cost are as follows:
Fixed
Costs p.a.
(Rs)
50,000 60,000 70,000 80,000 90,000
Probability 0.1 0.3 0.3 0.2 0.1
What is the probability that the company will equal or exceeds
its target profit of Rs. 25,000 for the year?
07

OR
Page 2 of 5

(b) The global manufacturing company ltd. Is considering an
investment in one of the two mutually exclusive proposals-
project X and Y, which requires cash outlay of Rs, 3,40,000 and
3,30,000 respectively. The certainity equivalent approach is
used in incorporating risk in capital budgeting decision. The
current yield on government is 8% and this be used as the risk
less rate. The expected net cash flow and their certainity-
equivalents are as follows :
Project- X Project-Y
Year end Cash flow
(Rs.)
C.E. Cash
flow(Rs.)
C.E.
1 1,80,000 0.8 1,80,000 0.9
2 2,00,000 0.7 1,80,000 0.8
3 2,00,000 0.5 2,00,000 0.7
Present value factor of Rs. 1 discounted at 8% at the end of the
year1,2,and 3 are 0.926,0.857,0.794 respectively.
Required , which project should be accepted?

Required which project should be accepted?

07

Q.3 (a) Suppose you are a project manager of Ford ltd, Ford wants to
start its new unit in Gujarat, As a project manager you were
given the task of preparing feasibility study report for the same.
Discuss the factors you need to consider while preparing
feasibility report.
07
(b) Excess company?s earning per share are Rs. 20. The company is
considering to adopt payout ratio of 20%, 40% or 60%. What
will be the market values of the company?s share using walter?s
model.
I. If company?s retain earning earn return of 20% and cost
of capital of the company is 10% and
II. If the return of retained earning of company is 15% and
cost of capital of the company is 10%?
07
OR
Q.3 (a) Explain the factors which determine the dividend policy of a
company.
07
(b) Mr. Akshat holds 12,000 equity shares in SKP private Ltd. , the
nominal and paid up share capital of which consist of:
1. 40,000 equity shares of Rs. 1 each and
2. 10,000, 8% preference shares of Rs. 1 each
It is ascertained that :
I. The normal annual profit of such a company is Rs.
12,000.
II. The normal rate of transfer to general reserve is 10%.
III. The normal return by way of dividend on the paid up
value of equity share capital for the type of business
carried on by the company is 15%.
Based on above parameter calculate the valuation of Mr.
Akshat?s share holding in SKP pvt.ltd.
07

Q.4 (a) What is corporate restructuring ? describe various techniques of
corporate restructuring .

07
Page 3 of 5

(b) Calculate the degree of operating leverage, financial leverage
and combined leverage based on following information :
Particular Firm-A Firm -B Firm -C
Output (units) 60,000 15,000 1,00,000
Fixed cost 7,000 14,000 1,500
Variable Cost 0.2 1.5 0.02
Interest on
borrowed fund
4,000 8,000 ----
Selling Price per
unit
0.60 5.00 0.10

07
OR
Q.4 (a)
Define Industrial sickness and discuss the causes of industrial
sickness.

07
(b) The following particulars are available in respect of a corporate
(i) profit after taxs (for the current year) Rs. 30 crore which
include extraordinary gain of Rs. 8 crore(ii) to maintain sales,
crore(iii) capitalization rate applicable to business to which
corporate belongs is 12 percent.
From the above information, determine the value of business,
value of equity( assume total external liabilities of Rs. 50
crore)nand price per equity share( assume 1 crore equity shares
of Rs. 100 each outstanding) based on the capitalization
method. Assume tax rate of 40 percent.
07
Page 4 of 5

Q.5

XYZ company is planning to expand its assets by 50 percent.
All financing for this expansion will come from external
sources. The expansion will generate additional sales of Rs. 3
lakh with a return of 25 per cent on sales before interest and
taxes. The finance department of the company has submitted the
following plans for consideration of the board.
Plan-I: Issue of 10% debentures
Plan-II: Issues of 10% debentures for half the required amount
and balance in equity shares to be at 25 percent premium.
Plan-III: Issue of equity shares at 25 percent premium.
Balance sheet of the company as on 31
st
march
Liabilities Amount Assets Amount
Equity capital(Rs.
10 per share)
4,00,000 Total Assets 12,00,000
8% debentures 3,00,000
Retained Earnings 2,00,000
Current Liabilities 3,00,000
12,00,000 12,00,000

Income statement for the year ending 31
st
march
Particular Amount
Sales 19,00,000
Operating Cost 16,00,000
EBIT 3,00,000
Interest 24,000
Earning After Tax 2,76,000
Taxes 96,600
EAT 1,79,400
EPS 4.48
I. Determine the number of equity shares that will be
issued if plan 3 is adopted.
II. Determine indifference point between(i) plan 1 and
2(ii) Plan 1 and plan 3, and (iii) plans 2 and 3.
III. Assume that the price earning ratio is expected to
remain unchanged at 8 if plan 3 is adopted, but is
likely to drop to 6 if either plan 1 or 2 is used to
finance the expansion. Determine the expected
market price of the shares in each of the situation.
14

OR
Q.5 The balance sheet of Surya ltd as on march 31,2010 is as
follows :
Particular Amount
Sources of fund :
Share capital 200
Reserve & surplus 140
Long term loans 360
Total 700
Application of fund :
Fixed asset (net block) 500
Current assets, loans & provisions
Inventories 300
14
Page 5 of 5

Receivables 240
Cash & bank 60
Total 600
Less : current liability and provisions
Short term loans 200
Payables 120
Provisions 80
Total 400
Net current assets 200
Total 700
Sales for the year 2009-10 were Rs. 600 lakh. For the year
ending on march 31,2011, they are expected to increase by 20%
the net profit marginafter taxs and dividend payout are expected
to be 4 and 50 per cent respectively.
You are required to :
1. Estimate the external fund requirement for the year
2010-11
2. Determine the mode of raising EFR given the following
parameters:
a. Current ratio should be 1.33
b. Ratio of fixed asset to long term loan should be
1.5
c. Long term debt to equity ratio should not exceed
1.06
3. Determine the order of preference of EFR amongst short
term loans, long term loans and equities.

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