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  • B Com (Hons) III Paper Xix - Financial Management

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    Sankaranarayanan SR
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    B COM (HONS) III PAPER XIX- FINANCIAL MANAGEMENT

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    b Com (Hons) III Paper Xix- Financial Management

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    B COM (HONS) III PAPER XIX- FINANCIAL MANAGEMENT

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    © All Rights Reserved
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    23 Ansichten36 Seiten

    B Com (Hons) III Paper Xix - Financial Management

    Hochgeladen von

    Sankaranarayanan SR
    B COM (HONS) III PAPER XIX- FINANCIAL MANAGEMENT

    Copyright:

    © All Rights Reserved
    Als PDF herunterladen oder online auf Scribd lesen
    Markieren Sie unangemessene Inhalte
    von 36
    This question paper contains 32 printed pages+4 Table] Your Roll No. ... 9600 B.Com. (Hons.)/I11 B Paper XIX—FINANCIAL MANAGEMENT ‘(Admissions of 2004 and onwards) Time : 3 Hours Maximum Marks : 75 (Write your Roll No. on the top immediately on receipt of this question paper.) Note :— The maximum marks printed on’ the question paper are applicable for the candidates registered with the Schoo! of Open Learning for the B.Com.(Hons.). These marks will, however, be scaled down proportionately in respect of the students of regular colleges, at the time of posting of awards for compilation of result. Note :-— Answers may be written either in English or in Hindi; but the same medium snould be used throughout the paper. We Wes a a aiiish ar feet frat we aT 4 dite; df ait at a ae we a a arte | Attempt A questions. wht we aif: PTO. (a) @) “Investment, Financing and Dividend decisions are all interrelated.” Comment. 4 X Ltd. has a machine having an additional life of 5 ‘years which costs Rs. 10,00,000 and has a book value of Rs. 4,00,000. A new machine costing Rs. 20,00,000 is available. Though its capacity is the same as that of the old machine, it will mean a saving in variable costs to the extent of Rs. 7,00,000 per annum. The life of the machine will be 5 years at the end of which it will have a scrap value of Rs. 2,00,000. The rate of income-tax is 40% and X Ltd.’s policy is not to make an investment if the yield is less than 12% per annum. The old machine, if sold today, will realise ( 3 3 9600 "Rs. 1,00,000; it will have no salvage value if sold at the end of 5th year. Advise X Ltd. whether -or not the old machine should be replaced. Capital gain is tax free. Ignore income-tax saving on additional depreciation as well as on loss due to sale of existing machine. Will it make any difference, if the additional depreciation (on new machine) and gain on sale of old machine is also subject to same tax at the rate of 40%, and the scrap value of the new machine is. Rs. 3,00,000, il (5) ‘Prim, fatten ate nin & fia A wh satater aa Er! feet wife PTO. (4) 9600 (a) x fates Some we aie @ fee atfaftad staan s af & atk ara 1000000 & &1 SaRT YEH AEA 4,00,000' %. tw x aia 20,00,000 eA wee twa erat arvan F 7,00,000 %. wht ad at aaa at ca agit al Sharer 5 a4 am ak we ae FER FreMeT AFT 2,00,000 &. M1 sma St A “gon & ate x foes wt we ot BRE fram a fea ora ae omy yfiad 12% 8 wR at grt wi at ak am aq ae a wa 100,000 8. ara WA sik af via we ae dat wr A geet fren art yet et) x fates (a) (3) 9600 a sae df fe a We min FH ‘yfrenfra ae aise site ome a-aaT 21 afifet FE KR aaa St aa HK aR age aid a aa Fo aro af Han q Ofer wre an a orem ae fife yeTwE Eom yw ak get a a at s BT Hw eA RT TIT TH 40% FH ag agin at FRI Yea 3,00,000 &. Fi Or. (sta) “Despite being conceptually unsound, Pay-back period , is very popular in businesses as a criterion for assigning priorities to investment projects.” Explain. 4 PTO, ( 6 } 9600 () A firm whose cost of capital is 10% is considering two mutually exclusive projects X and Y, the details of which are : ., Year Project X —S Project Y Rs. Rs, Cost 0 1,00,000 1,00,000 Cash Inflows 1 10,000 50,000 After Taxes 2 > 20,000 40,000 . 3 30,000 20,000 4 45,000 10,000 , 5 60,000 10,000 ‘Compute the Net Present Value at 10%, Profitability Index and Internal rate of return for the two projects. Aliso decide which project should be accepted and why ? : Ik ( 7) ~ 9600 (%) ‘aaern at gfe 8 da we om ¢ fax wt Ta aga aa at safe, fran watt ais a afta 8 F fae fast a wa a, oa 3 ae def 21" open mits | . (a) we wa, frost GSi-cre 10m %, A WE wT A orade weiner, x at y, nm fer a Ta & fran wrt sa van @ : ad uftarerr x afta y e e. wT 0 1,00,000 1,00,000 tas aaa 10,000 50,000 SUAS TE 2 20,000 40,000 3 30,000 ~—S=—=—-20,000 4 45,000 10,000 a 60,000 10,000 “PTO. () (6) ( 8 ) 9600 10% 7 faa aA AST a, WIE Tats Rw afiser sees wa gf fear sifie fe fea ude a een won ofey ak i? Distinguish between business risk and financial risk of a firm. How are they measured ? 4 The capital structure of XYZ Ltd. is as under’: Rs. 9% Debentures 2.75000 11% Preference Shares 2,25,000 Equity shares 5,00,000 (Face value-Rs. 10 per share) 10,00,000 Additional information : @ (i) i) (7) Rs. 100 per debenture redeemable at par; has 2% floatation cost and 10 years of maturity. The market price per debenture is Rs. 105. Rs. 100 per preference share redeemable at par, has 3% floatation cost and 10 years of maturity. The market price per preference share is Rs. 106. Equity share has Rs. 4 floatation’cost and market price per share of Rs. 24. The expected dividend is Rs, 2 per share with annual growth of 5%. Corporate income tax rate is 35%. Calculate Weighted Average Cost of Capital (WACC) using market value weights. il PTO. ( 10 ) 9600 (a) wt & aaare-sifen atk fara sifen 4 arc ag! sal Ha AT wa Ft ? (a) xyz fafits at Pl dea ga yen Zz : %. 9% feat 2,75,000 11% Sf sR _ 225,000 tered WR “5,00,000 (sifra ART 10 & whe saz) | 1900000 afaiter yaar : @ 100 % wh fer a, fa tan aor wy wan & wd at at oT 2% ai uftvaan ara 10 a am 21 fae wl AS wa 105 &. we) ( Wo) 9600 (i) 100%. Sia sf Beat at fre get yea R Be wT Tea % Mee at ae at arr 3% aR uf aa 10 ad f afer YR a aM Ta 106 & FH Gi) Waa WR A wt. et Bt ama 4 = aie arare oma wf Bae 24% 81 wee aig 2%. wit wae este gaat anti afE 3% BI (v) HT wt ay HR-ar 35% ZI aR WEI ont a win ab tet at uta ahaa ar (wACC) fe Hf Or (ata) . (a) State the different approaches to the computation of cost of equity capital. 4 PTO. ® (. 12.) 9600 PQR Ltd. provides the following details ; : J vn nee AEE Installed Capacity 1,50,000 units Actual Production and Sales 1,00,000 units Selling Price per unit . Re. | Variable Cost per unit Re. 0.50 Fixed Costs : Rs. 38,000 Funds required Rs. 1,00,000 Financial Plans Capital Structure A B. Cc “Equity shares of Rs. 100 - each to be issued at 25% premium 60% 40% 35% 15% Debt 40% 60% 50% 10% preference shares Rs. 100 each oo _ 15% Assume Income Tax rate 40%. Calculate : () Degree of operating leverage, financial leverage and combined leverage for each financial plan. (i) The Indifference point between plan A and B. (iif) The financial break-even point for each . f plan and suggest which plan has more financial risk. i (a) edt St oor & afer a fafa veh a sera atin PTO. ( 14) 9600 (@) por faft2s A farfefiaa andi ct =: Senta aT 1,50,000 fe — sores it fat 1,00.000 Wfrz fara aia vfs afte) 1%. aftadt ama wa afte 0.50 &. earth = 38.000 ¥. aifea fatty . 1.00.000 ¥. feria atrang ira det A _ B c "100 %. art tad PRR FS 25% Miter Rut ser Fe 60% = dome 35% 15% FEU] 40% 60% 50% 10% Sir war 100%. a 18% (a) () ( 15) 9600 an cpm fe ara at et 40% @1 uae ahi : (@ wee fata ae & fae vere wire wiea wt antfet Gy asa a att BB ste afin fags (ii) WET — & fem fata ey-senv fag ait gene fis shat aaa F feria ster afte $1 Describe in brief the various factors which are taken into account in determining the working capital needs of a firm. 4 A trader, whose current sales are Rs. 15 lakh per annum and average collection period is 30 days, wants to P.T.O. ( 16) ° 9600 pursue a more liberal credit policy to improve the sales. - The following data are available : or Credit (Period) Increase in. Increase Policy Collection Period | in. Sales A 15. days 60,000 BO ' 30 days 90,000 Cc 45 days 1,50,000 D 60 days 1,80,000 ES . 90 days 2,00,000 | —_-?--_— “The selling price per unit is Rs. 5. Average cost per unit is Rs. 4 and variable cost per unit is Rs. 2.75. The Tequired rate of retum on additional investment is 20%. Assume a 360 days year and also assume that there are no bad debt losses. Which of the above policies would you recommend for ?° i ( 17) 9600 (H) we wa at ardent ost et snearanmsit a fatita ae a faa fah oral oe fr fran om @ wa daa 3 at sta (a) we oad, reat shot feet 1s ore aff at & ote shaw dace oft 30 fer &, fat aor @ fay afin sae sen Aa a aqaeT aot aren #, & frefifar siege sraar e: Benet (arate) fet a farsat w afer A 15 FA B 30 fr c 48 fer -D 60 fA BE 90 ft _ Fate » 60,000 s00m0 1,50,000 1,80,000 2,00,000 PTO. () ( 1) 9600 oft afe foma qey s & 1 ste ar oft ype 4% ak vied oma oft af 275% Bi after Fae we aifea aftemae 20% 81 aR cif fe a F360 fea a @ ak ae ater am ata wi € a srg Td 3 8 feast ony firme amt 2 (aren) The key argument of Walter’s model . is that a firm would have an optimum dividend policy ? Comment and explain taking suitable illustration. 4 ¢« 19) 9600 (6) Prepare the cash budget for July—-Dec. from the following information : (i) Estimated sales, expenses etc. are as under : (Rs. lakh) tS June July Aug. Sep. Oct. Nov. Dec. a Sales 35 40 40 30 5060 65 Purchases s14si‘dHiai Ss Wages & Sal. 12 14 14 18 18 20 22 Mis. Exp. 5 6 6 6 7 7 7 Int. received 2 - - 2 _ _ 2 Saleof Shares = — - 20 ~ = - - (i) 20 per cent of sales are on cash and the balance on credit. P.T.O. ( 20 ) 9600 (iif) 1 per cent of the credit sales are returned by the customers, 2 per cent debts are uncollectible: 50 per cent of the good accounts receivables are. collected in the month of the sales and the rest during next month. (i) The time lag in payment of miscellaneous expenses and purchase is one month. Wages and salaries are paid fortnightly with a time lag of 15 days. (¥) Cash balance at the beginning of July is Rs. 5 lakhs. WW (#) ‘oe niga’ w yea a ae t fe wi a rear on aif eet ase) saga sac te foot sik een wifa ( 2) 9600 (a) frafetes warns 8 yene-fese mH fee tes-aee tar atm : (9 sgafia fart, cr genie ga wer & : Ta & A famt .35 40 40 50 50 60 65 wee 14 16 17 20 20 2 28 craft ae Bae 12 4 14 18 . 18 20022 fafau wa 5. 6 6 6 7 7 7 Sa WTS BA . 2 - - 2 - = 2 ‘gait - - 0 - - = = (i) 20% fat vee a Ye TR RR wi PTO. (a) (6) ( 22) 9600 Gin Se fat wr 1 vite meat gra cha fem 7 1 2 waa a age Ae fare a WHA S som We AER Ga faat F wer A aga al at & ak wo ama Ter | @) fafaa Gel ot acer sik ade 4 crane we FEA ar tt aaeftel ait aaa is fa & araiava 8 ules wy A ser fee omit ®) ‘@) FIR Fe ary 4 des ao 5 wre s. ¢1 Explain the Baumol’s model of Cash Management ? 4 Companies X and Y are in the same risk class, and are identical in every respect except that Company X uses debt, while company Y does not. The levered firm ( 23) 9600 has Rs. 9,00,000 debentures, carrying 10% rate of interest. Both the firms earn 20% operating profit on their total assets of Rs. 15-lakhs. Assume perfect capital markets, rational investors and so on; a tax rate of 35% and capitalisation rate of 15% for an all-equity company. Compute : (i) Value of firms ‘X and Y using Net Income (NI) approach. (i Value of each firm using Net Operating Income (NOI) approach. (ili) Overall cost of capital (K,) for firms X and Y. (iv) Which of these two forms has an optimum capital structure using NOI approach and why ? = fi PTO. ( 24 ) 9600 (%) wea wee S chia visa st omen wife (a) x ak y emf we a vifen of a F ok a & gfe 8 wre & Sac ga wa FH Beat: fe x wert a ar wat act & sit y exrH eT a aT ae Sat Bi afer HS og - 900,000 ¥. % feta € fi we 10% a a ari frm &1 a we is me =. at art ae uiaufedt wt 20% were amy afta wef tion ifm fe pt et ar, als freer of %, at st we ase toe ame siradt are ert a fore dota st ex 150% * afer afm ; @ Fat am wy srs win ar x atk Y wat a aa { 25) 9600 Gj) Fae VaR aa won Sora a Wa aH yas wt a WT cay x ott yea B me a Frere Ph err (K,)| | oo No Sm a sn oe AE fe a wi 4 a feast com Wt dem Bo we? Or (saan) (a) Explain stable dividend policy. What is the significance of stability of dividend ? 4 (6) ABC Ltd. belongs to a risk elass of which the appropriate capitalisation rate is 10%. It currently has 1,00,000 shares selling at Rs. 100 each. The firm is P.T.O. CF (a ( 26 ) 9600 contemplating declaration of a dividend of Rs. 6 per share at the end ‘of the current fiscal year which has just begun. The company expects to have a net income of Rs. 10 lakhs and has a proposal for making new investments of Rs. 20 lakhs during the period. Show that, under the MM assumptions, the payment of dividend does not affect the value of the firm now ) ~ as well as after the issue of new shares. Ik wart anne Te st sen aise cara, a writ @ aw eq wea et ? apc fakes tifa of 3 omit & fragt srr Banc a 10% 81 Sas We Fe aA 1,00,000 wr = W100 & wie we S oa 2 fae @ 21 wi aq waste af at aftr 7 (2) (0) ( 27) 9600 6%. We tee ci dia ae a dhe wt 2a wa dF we wt wert @t orm @ fe Saat Fras oa 10 wa % at ste sam were & fee oa 8 20 mea & A ae fae. at vein Sif fe Mow ate Biota crvia at seer ar wh mh yea Ww aa sit me om tai ood we Soo SY oe met WS Differentiate between risk adjusted discount rate and certainty equivalent methods of incorporation of risk in capital budgeting. 4 A manufacturing company purchases 24,000 pieces of a component from a sub-contractor at Rs. 500 per piece PTO, (#) (a) ( 28.) 9600 and uses them in assembly department, at a steady rate. The cost of placing an order and following it up is Rs. 2,500. The estimated stock-holding cost is approximately 1% of the value of average siock held. The company is at present placing orders which at present vary between an order placed every two months. (ie., six orders p.a.) to one order per annum. Which policy would you recommend ? I Sifea warifaa ser at sik Yet ase4 A afer ae ultra ae at frase wiges fates A aA ae ue fatmin aor soo % waa ata a we san 8 w YF 24,000 7 wee @ at o@ dasn fem 4 fe x RR aa 1 ws gen SF at ama ak wae (a) ® ( 29°) 9600 arama at or 2500 & Rl agama wie Sr eT stra ent ele RAT aT 1% tia om aetna at 2 we at arm wt et aft A Fa aa anes (salq 3: ate vit at) sit we oa gh ad & ata fast) am fea itt at faortee RT? Or, (a7) Discuss the consequences of lengthening and shortening of credit period by a firm. 4 The two companies U and L, belong to an equivalent risk class. These two firms are identical in every respect ‘except that U company is. unlevered while company L has a 10 percent debentures of Rs. 30 lakh. The other PTO. « 30 ) 9600 relevant information regarding their valuation and capitalisation rates are as follows ee Particulars : Firm U Firm L Net operating Income (EBIT) Rs. 7,50,000 Rs. 7,50,000 Interest on Debt (1) | — Rs.3,00,000 Earnings to equity holders (NI) Rs. 7,50,000 Rs. 4.50,000 Equity capitalisation rate (K,) 0.15 020 Market value of equity(S) Rs. 50,00,000 Rs. 22,50,000 Market value of debt (B) . — Rs.30,00,000 Total value of firm(S+B)=V —_ Rs. 50,00,000 Rs. 52,50,000 Overall Capitalisation Rate (K,) 0.15 0.143 - Debt Equity Ratio (B/S) 0 133 () An investor owns 10 percent equity shares of company L. Show the arbitrage process and the amount by which he could reduce his outlay through the use of leverage. (i) According to Modigliani and Miller, when will this arbitrage process come to an end ? "1 (*) wH go am at safe a am ak vA $ cium at faden aif (@) U aR Lae went ager sifes at at ea cH wi a ie a aed % aac Fam wt sige fF u ser age & sath Lp watt A Wa 30 wee F 10% ae PTO. ( 32) 9600 fed $1 ee qe ak Stem at

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