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II Semester M.B.A. Degree Examination, July 2016
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(CBCS)
MANAGEMENT
2.5: Financial Management
Time: 3 Hours
PG-922
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Max. Marks: 70
SECTION-A
Answer any five of the following questions. Each question carries five marks. (5x5=25)
- Explain the various types of decisions which are to be taken by financial manager in the emerging business scenario.
- Discuss any five factors relevant in determining capital structure.
- Why dividend policy is important for a company? Explain.
- A company has Rs. 20,00,000 6% Debentures outstanding today, which will be redeemed after 5 years. For redemption the company established a sinking fund and its investments earn interest @ 10% p.a. What annual payment must the firm make to ensure that the needed Rs. 20,00,000 available on the designated date.
- The capital structure of Bombay Traders Ltd. as on 31-3-2015 is as follows
(06-01)
Rs. in crores Equity capital: 100 lakh equity shares of Rs. 10 each 10 Retained Earnings 2 14% debentures 3 --- Content provided by FirstRanker.com ---
For the year ended 31-3-2015 the company has paid a equity dividend at 20% and the growth rate is 5% every year. The equity shares are traded at Rs. 80 per share in the stock exchange. Tax rate applicable to the company is 40%. Calculate the current weighted average cost of capital. - The following details of ABC Ltd. for the year ended 31-3-2015 are furnished.
Operating leverage 3
Financial leverage 2
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Corporate tax 40%
Variable cost as a % of sales 60%
Prepare the Income Statement of the company. - A company sells 40,000 units of its product per year @ Rs. 35 per unit. The variable cost per unit is Rs. 28. The average collection period is 60 days. Bad debt losses are 3% on sales and the collection charges amount to Rs. 15,000. The company is considering the proposal to follow stricter collection policy which would bring down bad debts to 1% of sales and average collection period to 45 days. It would however, reduce the sales volume by 1000 units and increase the collection expenses to Rs. 25,000.
The company requires a rate of return of 20% would you recommend the adoption of the new credit policy?
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SECTION-B
Answer any three of the following questions. Each questions carries ten marks. (3x10=30)
- What is working capital policy? Explain the different types of working capital policies of the business firm.
- "Walter's model asserts that retentions influence stock price only through their effect on future dividends" - Discuss.
- XYZ Ltd. is considering three financing plans.
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Financial Plan A B C Equity 100% 50% 50% Debt 50% Preference 50%
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Total funds to be raised Rs. 200 crores
Rate of Interest on debt 12%
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Corporate tax rate 35%
Dividend on preference shares 9%
Face value of equity share Rs. 10 each. These shares will be issued at a premium of Rs. 10 per share
Expected E.B.I.T Rs. 80 crore
Determine:
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- E.P.S. under each plan
- Indifference points between financial plans A and B and A and C.
- Capro industries plans an investment of Rs. 75,000 in a new machinery that would produce inflow of Rs. 25,000 every year for 5 years. The representative of another equipment manufacturer presents an alternative proposal. By investing Rs. 1,60,000 in his company's equipment Capro industries can obtain a cash inflow of Rs. 50,000 every year for five years. In future, an investment of this type can be expected to yield a discounted rate of return of 12%.
You are required to find :- Which alternative is more attractive if a discounted rate of 12% is expected?
- The discounted rate of return on investment alternatives.
- Discounted rate of return on incremental investment.
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SECTION-C
12. Case study - Compulsory.
XYZ Ltd. is presently operating at 60% level producing 36000 units and proposes to increase capacity utilization in the coming year 33 1/3% over the existing level of production. The following data has been supplied.
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a) The expected ratio's of cost to selling price are :
Raw material 40%
Direct wages 20%
Overheads 20%
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b) Selling price per unit Rs. 15.
c) Raw materials will remain in stores for 1 month. Material will remain in process for further one month.
d) Suppliers grant 3 months credit to the company and debtors are allowed 2 months credit.
e) Finished goods remain in godown for one month.
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f) Lag in wages and overhead payment is one month.
Prepare a projected profitability statement and the working capital requirement at the new level, assuming that a minimum cash balance of Rs. 50,000 has to be maintained.
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