Download JNTUH (Jawaharlal Nehru Technological University Hyderabad) MBA (Master of Business Administration) 2nd Semester (Second Semester) R15 2019 Dec 721CM Financial Management Previous Question Paper
Code No: 721CM
JAWAHARLAL NEHRU TECHNOLOGICAL UNIVERSITY HYDERABAD
MBA II Semester Examinations, December - 2019
FINANCIAL MANAGEMENT
Time: 3hours Max.Marks:75
Note: This question paper contains two parts A and B.
Part A is compulsory which carries 25 marks. Answer all questions in Part A. Part B
consists of 5 Units. Answer any one full question from each unit. Each question carries
10 marks and may have a, b, c as sub questions.
PART - A 5 ? 5 Marks = 25
1.a) What are the principal activities of finance manager? [5]
b) What are the problems in determining cost of capital? What is the relevance of cost of
capital to capital budgeting decisions? [5]
c) What is composite leverage? Explain briefly. [5]
d) What are the considerations to be kept in mind when company issues
i) bonus shares ii) right shares. [5]
e) What are the various costs associated with receivables? [5]
PART - B 5 ? 10 Marks = 50
2. The probability distribution of expected future returns are as follows:
Probability Return on shares
(percentages)
X Y
0.1 (16) (18)
0.2 2 12
0.4 8 18
0.2 12 32
0.1 20 40
Compute the a) standard deviation of expected returns of each share and b) coefficient
variation. Which share is more risky and why? [10]
OR
3. To supplement your planned retirement after 30 years, you estimate that you need to
accumulate Rs.22,00,000 by the end of 30 years from today. You plan to make equal
end-of-the year deposit into an account paying 6% annual interest. Calculate the
amount to be deposited each year. [10]
4. A plastic manufacturing company is considering replacing an older machine which
was fully depreciated for tax purposes with a new a machine costing Rs.40,000. The
new machine will be depreciated over its eight year life. It is estimated that the new
machine will reduce labour costs by Rs.8000 per year. The management believes that
there will be no change in other expenses and revenues of the firm due to the machine.
The company requires an after tax return on investment of 10 percent. Its rate of tax is
35 percent. The company?s income statement for the current year is given for other
information.
R15
S
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Code No: 721CM
JAWAHARLAL NEHRU TECHNOLOGICAL UNIVERSITY HYDERABAD
MBA II Semester Examinations, December - 2019
FINANCIAL MANAGEMENT
Time: 3hours Max.Marks:75
Note: This question paper contains two parts A and B.
Part A is compulsory which carries 25 marks. Answer all questions in Part A. Part B
consists of 5 Units. Answer any one full question from each unit. Each question carries
10 marks and may have a, b, c as sub questions.
PART - A 5 ? 5 Marks = 25
1.a) What are the principal activities of finance manager? [5]
b) What are the problems in determining cost of capital? What is the relevance of cost of
capital to capital budgeting decisions? [5]
c) What is composite leverage? Explain briefly. [5]
d) What are the considerations to be kept in mind when company issues
i) bonus shares ii) right shares. [5]
e) What are the various costs associated with receivables? [5]
PART - B 5 ? 10 Marks = 50
2. The probability distribution of expected future returns are as follows:
Probability Return on shares
(percentages)
X Y
0.1 (16) (18)
0.2 2 12
0.4 8 18
0.2 12 32
0.1 20 40
Compute the a) standard deviation of expected returns of each share and b) coefficient
variation. Which share is more risky and why? [10]
OR
3. To supplement your planned retirement after 30 years, you estimate that you need to
accumulate Rs.22,00,000 by the end of 30 years from today. You plan to make equal
end-of-the year deposit into an account paying 6% annual interest. Calculate the
amount to be deposited each year. [10]
4. A plastic manufacturing company is considering replacing an older machine which
was fully depreciated for tax purposes with a new a machine costing Rs.40,000. The
new machine will be depreciated over its eight year life. It is estimated that the new
machine will reduce labour costs by Rs.8000 per year. The management believes that
there will be no change in other expenses and revenues of the firm due to the machine.
The company requires an after tax return on investment of 10 percent. Its rate of tax is
35 percent. The company?s income statement for the current year is given for other
information.
R15
S
Income statement for the current year
Sales
Costs
Materials
labour
Factory and administrative
Depreciation
Net income before taxes
Taxes (0.35)
Earnings after taxes
Rs. 1,50,000
2,00,000
40,000
40,000
Rs. 5,00,000
4,30,000
70,000
24,500
45,500
Should the company buy new machine? You may assume the company follows
straight line method of depreciation and the same is allowed for tax purposes. [10]
OR
5. From the following information supplied to you, determine the appropriate weighted
average of cost of capital, relevant for evaluating long term investment projects of the
company.
Cost of equity: 12 percent
After tax cost of long term debt: 7
After tax cost of short term debt: 7
Source of capital Book value (Rs.) Market value (Rs.)
Equity 5,00,000 7,50,000
Long term debt 4,00,000 3,75,000
Short term debt 1,00,000 1,00,000
Total 10,00,000 12,25,000
[10]
6. AB Ltd., provides you the following information:
Profit
Less: interest on debentures(0.12)
Earnings before taxes
Less: taxes (0.35)
Earnings after taxes
Number of equity shares (Rs. 10 each)
Earnings per share
Ruling market price
P/E ratio
Rs. 3,00,000
60,000
2,40,000
84,000
Rs.1,56,000
40,000
3.9
39
10
The company has undistributed reserves Rs.6,00,000. It needs Rs.2,00,000 for
expansion which will earn the same rate as funds already employed.
You are informed that a debt-equity ratio higher than 35 percent will push the P/E ratio
down to 8 and raise the interest rate on additional amount borrowed to 14 percent.
You are required to ascertain the probable price of equity share if the additional funds
are raised as debt. [10]
OR
S
FirstRanker.com - FirstRanker's Choice
Code No: 721CM
JAWAHARLAL NEHRU TECHNOLOGICAL UNIVERSITY HYDERABAD
MBA II Semester Examinations, December - 2019
FINANCIAL MANAGEMENT
Time: 3hours Max.Marks:75
Note: This question paper contains two parts A and B.
Part A is compulsory which carries 25 marks. Answer all questions in Part A. Part B
consists of 5 Units. Answer any one full question from each unit. Each question carries
10 marks and may have a, b, c as sub questions.
PART - A 5 ? 5 Marks = 25
1.a) What are the principal activities of finance manager? [5]
b) What are the problems in determining cost of capital? What is the relevance of cost of
capital to capital budgeting decisions? [5]
c) What is composite leverage? Explain briefly. [5]
d) What are the considerations to be kept in mind when company issues
i) bonus shares ii) right shares. [5]
e) What are the various costs associated with receivables? [5]
PART - B 5 ? 10 Marks = 50
2. The probability distribution of expected future returns are as follows:
Probability Return on shares
(percentages)
X Y
0.1 (16) (18)
0.2 2 12
0.4 8 18
0.2 12 32
0.1 20 40
Compute the a) standard deviation of expected returns of each share and b) coefficient
variation. Which share is more risky and why? [10]
OR
3. To supplement your planned retirement after 30 years, you estimate that you need to
accumulate Rs.22,00,000 by the end of 30 years from today. You plan to make equal
end-of-the year deposit into an account paying 6% annual interest. Calculate the
amount to be deposited each year. [10]
4. A plastic manufacturing company is considering replacing an older machine which
was fully depreciated for tax purposes with a new a machine costing Rs.40,000. The
new machine will be depreciated over its eight year life. It is estimated that the new
machine will reduce labour costs by Rs.8000 per year. The management believes that
there will be no change in other expenses and revenues of the firm due to the machine.
The company requires an after tax return on investment of 10 percent. Its rate of tax is
35 percent. The company?s income statement for the current year is given for other
information.
R15
S
Income statement for the current year
Sales
Costs
Materials
labour
Factory and administrative
Depreciation
Net income before taxes
Taxes (0.35)
Earnings after taxes
Rs. 1,50,000
2,00,000
40,000
40,000
Rs. 5,00,000
4,30,000
70,000
24,500
45,500
Should the company buy new machine? You may assume the company follows
straight line method of depreciation and the same is allowed for tax purposes. [10]
OR
5. From the following information supplied to you, determine the appropriate weighted
average of cost of capital, relevant for evaluating long term investment projects of the
company.
Cost of equity: 12 percent
After tax cost of long term debt: 7
After tax cost of short term debt: 7
Source of capital Book value (Rs.) Market value (Rs.)
Equity 5,00,000 7,50,000
Long term debt 4,00,000 3,75,000
Short term debt 1,00,000 1,00,000
Total 10,00,000 12,25,000
[10]
6. AB Ltd., provides you the following information:
Profit
Less: interest on debentures(0.12)
Earnings before taxes
Less: taxes (0.35)
Earnings after taxes
Number of equity shares (Rs. 10 each)
Earnings per share
Ruling market price
P/E ratio
Rs. 3,00,000
60,000
2,40,000
84,000
Rs.1,56,000
40,000
3.9
39
10
The company has undistributed reserves Rs.6,00,000. It needs Rs.2,00,000 for
expansion which will earn the same rate as funds already employed.
You are informed that a debt-equity ratio higher than 35 percent will push the P/E ratio
down to 8 and raise the interest rate on additional amount borrowed to 14 percent.
You are required to ascertain the probable price of equity share if the additional funds
are raised as debt. [10]
OR
S
7. Give a critical appraisal of the traditional approach and the Modigliani-Millers
approach to the problem of capital structure. [10]
8. The earnings per share of a company are Rs. 10 and the rate of capitalization
applicable to it is 10%. The company has before it, the options of adopting a payout of
20% or 40% or 80%. Using Walter?s formula, compute the market value of the
company?s share if the productivity of retained earnings is a) 20% b) 10% and c) 8%.
What inference can be drawn from the above exercise? [10]
OR
9.a) What is meant by preemptive right of the shareholders?
b) What are the sources of bonus issue? [5+5]
10. As a part of the strategy to increase sales and profits, the sales manager of accompany
proposes to sell goods to a group of new customers with 10% risk of nonpayment. The
group would require one and a half months credit and is likely to increase sales by
Rs.1,00,000 p.a. Production and selling expenses amount to 80% of sales and the
income tax rate is 50%.The company?s minimum required rate of return after tax is
25%. Should the sales manager?s proposal be accepted? Also find the degree of risk of
nonpayment that the company should be willing to assume if the required rate of
return after is 30%. [10]
OR
11. Mr. Krishnan wishes to commence a new trading business and gives the following
information:
i) The total estimated sales in a year will be Rs.12,00,000
ii) His expenses are estimated as fixed expenses of Rs.2,000 per month plus a variable
expenses equal to 5% of his turnover.
iii) He expects to fix a sales price for each product which will be 25% in excess of his
cost of purchase.
iv) He expects to turnover his stock four times in a year.
v) The sales and purchases will be evenly spread throughout the year. All sales will be
for cash but he expects one month?s credit for purchases.
Calculate
a) His estimated profit for the year and
b) his average working capital need. [10]
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This post was last modified on 23 October 2020