Download BU (Bangalore University) MBA 2nd Semester 2018 July Financial Management Question Paper

Download BU (Bangalore University) MBA (Master of Business Administration) 2nd Semester 2018 July Financial Management Question Paper

17mm" 1 PG - 597
II Semester M.B.A. Degree Examination, July 201 8
(6368)
MANAGEMENT
2.5 : Financial Management
Time : 3 Hours Max. Marks : 70
SECTION - A
Answer any ?ve of the following questions. Each question carries 5 marks. (5x5=25)
1 . De?nethescopeof Financial Management. What role shouldthe?nancial manager
play in a modem enterprise ?? Explain.
2. Discuss the factors that should be considered while deciding a finn's capital
structure.
3. ?Walter's model asserts that retentions 'nfluenoe stock prices only through their
effect on future dividends? - Discuss.
4. A company has Rs. 40,00,000 8% debentures outstanding to-day. it hasto redeem
the debentures a?er 5 ywrs and estabtishlng a sinking fund to provide funds
for redemption. Sinking Fund Investments can earn interest 0 12 percent per
annum. The investments are made at theend of each year. What annual payment
must the firm make to ensure that the needed Rs. 40,00,000 is available on the
designated date.
5. ABC Ltd. has current sales of Rs. 40,00,000. The company planning to introduce
a cash discount policy of 2/10, net 30. As a result the company exmcts the
average collection period to go down by 10 days and 70% of the sales opt for cash
discount fac?ity. If the company's required return on investment in receivables is
20%. Should it introduce the new discount policy ?
6. If the combined leverage and operating leverage of a company are 2.5 and 1.25
respectively. Find the ?nancial leverage and PN ratio. Given that the equity
dividend per share is Rs. 2, interest payable per year is Rs. 1,00,000, total ?xed
cost Rs. 50,000 and sales Rs. 10,00,000.
e.to.

PG ? 597 -2. IIIIIIII
7. ABC Ltd. sells its product @ a gross profit 0120% on sales. The following information
is extracted from its annual accounts for the year.
Amount
Rs.
Sales (3 months credit) 60,00,000
Raw-materials 18,00,000
Wages (15 days in arrears) 9.60.000
Manufacturing expenses (one month in arrears) 12,00,000
Administrative expenses (one month in arrears) 4.80.000
Sales promotion expenses (payable half yeany in advance) 2.00.000
Income tax (last quaner installment due) 4.00.000
The company enjoys one month credit from the suppliers of raw?materials and
maintains two month?s stock of raw-maten'als and one month's finished goods.
Cash balance is maintained at Rs. 1.00.000.
Calculate its net working capital.
SECTION ?B
Answeranymreeofmefollmuingques?usiaehqua?onmm10mans. (31:10:30)
8. What are the different methods of appraising mpilal investments ? Discuss briefly
each of the methods.
9. Explain the different scum of ?nancing working mpital needs of an
organisation.

9 ,
Illlllll .3. PG ? 597
10. The existing capital structure of XYZ Ltd. is as follows
11.
Amount
Rs.
Equity shares of Rs. 100 each 40,00,000
Retained earnings 10,00,000
9% preference shares 25,00,000
7% debentures 25,00,000
Company earns a return of 12% and tax on income is 35%.
The company wants to raise Rs. 25,00,000 for its expansion project for which it is
considering following aitematives.
i) issue of 20,000 equity shares @ a premium of Rs. 25 per share.
ii) issue 10% preference shares.
iii) issue 9% debentures.
Projected that P/E ratios in case of equity, preference and debenture financing 20,
17 and 16 reSpectively.
Which alternative would you consider to be the best ? Give reasons for your
choice.
You are required to determine the weighted average cost of capital of M/s Vinayaka
Enterprises Ltd., Bengaluru using (i) Book value weights (ii) Market value weights.
The company's present book value capital structure is
Amount
Rs.
Debenture (Rs. 100 per debenture) 16,00,000
Preference shares (Rs. 100 per share) 4,00,000
Equity shares (Rs. 10 per share) 20,00,000
All these securities are traded in the capital markets. Recent prices are Debentures
@ Rs. 110, preference shares @ Rs. 120 and equity shares @ Rs. 22. Anticipated
external ?nancing opportunities are
i) Rs. 100 per debenture redeemable at par, 10 years maturity, 8% coupon rate,
4% floatation cost, sale price Rs. 100.
ii) Rs. 100 preference shares, redeemable @ par, 15 years maturity, 10% dividend
rate, 5% floatation cost, sale price Rs. 100.
iii) Equity shares Rs. 2 per share ?oatation cost, sale price Rs. 22. In addition the
dividend expected on equity share at the end of the year Rs. 2 per share, the
anticipated growth rate in dividends is 5%. The tax rate is 50%. ,

PG ? 597 4- Inlllmmll
SECTION ? C
(Oompnsory) (13:15:15)
12. X Company Ltd. is considering two different investment proposals. Proposal ? A
has an investment cost of Rs. 10 |akhs and Proposal ? B has an investment cost
of Rs. 28 |akhs. Both the projects are expected to yield returns for a period of 5
years. The estimated income before depreciation and tax of the two proposals
are as follows :
Year End Proposal ? A Proposal - 3
Rs. Rs.
1 3,30,000 9.00.000
2 5.00.000 1 1 .00.000
3 3.70.000 12,00,000
4 3.00.000 8.00.000
5 2.00.000 7.00.000
a) Which is the most attractive investment proposal considering the discount rate of
12% ? Use NPV criteria to answer this question.
b) Find out the IRR of the two proposals.