(2014 Adm.Onwards)
MBA 2C08 :FINANCIAL MANAGEMENT
SECTION-A
Answer two questions in this Section. Each question carries 13 marks.
1. Why wealth maximisation objective is superior to profit maximisation objective?
Explain.
OR
The following information is avilable in respect of afirm.
Capitalisation rate 10 percent
EPS Rs.10.
Assumed rate of return on investmant
1) 15 percent 2)10 percent 3)8 percent
Dividend pay-out ratio:0 percent 20 percent 40 percent 60 percent 80 percent
100 percent.
Show the effect of dividend policy on the market price of shares, using Walter's
model.
2.A company expected annual net operating income is Rs50,000. The company
has Rs.2,00,000, 10 percent debentures. The equity capitalisation rate of the
company is 12.5 percent. The firm has decided to raise the amount of debentures
by Rs1,00,000 and uses the proceeds to retire the equity shares. Alternatively
the firm has decided to decrease the amount of debit by Rs.1,00,000 and a fresh
issue of equity is made to retire the debentures.Compute the cost of capital and
value of the firm according to Net operating Income approach for the different
capital structure.
OR
What is capital budgeting? Why is it significant for a firm?Discuss.
SECTION-B
Answer any six questions in this Section.Each question carries 9 marks.(1 mark
for Part(a),3 marks for Part(b) and 5 marks for Part(c))
3. a) What is operating leverage?
b)Explain the degree of combined leverage.
c)Consider the following information for a company:
EBIT (Rs.in Lakh) 1,120
PBT(Rs.in Lakh) 320
Fixed cost(Rs.in Lakh) 700
Calculate percentage change in EPS if sales increase by 5 percent.
4. a)What do you mean by pay-out ratio?
b)Explain birds in hand argument.
c)Discuss the factors influencing dividend decisions of company.
5. a)What is working capital?
b)Explain the dangers of excessive working capital.
6. a)What is capital rationing?
b)Explain payback period.
c) A firm is considering the following projects:
Calculate the NPV for the projects if the cost of capital is 10 percent. Should
the projects be accepted for investment? Why or why not ?
7. a)What is carrying cost ?
b)Explain incremental analysis.
c)A customer has been ordering 5000 units at the rate of 1000 per unitsper
order during the last year.The production cost is Rs.12 per unit(Rs.8 for
materials and labours and Rs.4 for overhead cost). It costs Rs.15,000 to set
up for one run of 1000 units and inventory carrying cost is 20 percent of the
production cost. Since this customer may buy at least 5000 units this year,
the company would like to avoid making five production runs.Determine the
most economic production run.
8. a)What is short term cash forecasting ?
b)Explain the method of preparing short term cash forecasts.
c)Explain the motives for holding cash.
9. a)What is credit standards ?
b)Explain credit analysis
c)A pro form cost sheet of a company provides the following information:
Details Amount(per Unit)(Rs.)
Raw materials 100
Direct labours 40
Overheads 70
Total cost 210
Profit 40
Selling Price 250
The following additional information are available:
a)Raw material in stock, on an average one month; materials in process,on an
average half a month;finished goods in stock,on an average one month.
b) Credit allowed by the suppliers is one month ;credit allowed to debtors is two
months; lag in payment of wages is one and half weeks;lag in payment of
overhead expenses is one month; one fourth of output is sold against
cash;in hand and at bank is expected to be Rs.25,000.
You are required to prepare a statement showing working capital needed to
finance a level of activity of 104000 units of production. You may assume that
production is carried on evenly throughout the year, and wages and overheads
accrue similarly.
SUBJECT LIST
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