Fourth Semester 5 Year B.B.A. LL.B. Examination, June/July 2014 Financial Management

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Fourth Semester 5 Year B.B.A. LL.B. Examination, June/July 2014

FINANCIAL MANAGEMENT
Duration : 3 Hours Max. Marks : 100
Instructions : 1. Answer all 5 questions.

2. Figures to the right indicate marks.
UNIT – I
Q. No. 1. (a) Ravindra Ltd. has the following capital : Marks : 15

Equity share capital
(2,00,000 shares of Rs. 20 each) 40,00,000
6% Preference share capital 10,00,000
8% Debentures 30,00,000
The market price of equity share is Rs. 20/share. The
company is expected to pay dividend of Rs. 2 per share
which will grow at 7%.
1) Calculate weighted average cost of capital assuming that
the company is under 50% tax bracket.
2) Also calculate the new weighted average cost of capital,
if the company raises an additional Rs. 20,00,000 debt
by issuing 10% debentures. This would result in increase
in the expected dividend to Rs. 3 per share and leave the
growth rate unchanged, but the market price of the share
will comes down to Rs. 15 per share.
OR
Following are the details regarding the capital structure of a
company :
Sources of capital Book value Market-Value Specific cost
Debentures 40000 38000 10%
Equity shares 60000 90000 26%
Preference shares 10000 11000 16%
Retained earnings 20000 30000 18%
You are required to determine the weighted average cost of
capital using :
1) Book value as weights
2) Market value as weights.
P.T.O.
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(b) Explain the importance of cost of capital. Marks : 5
OR
Explain how an empirical evaluation of a model is done.
UNIT – II
Q. No. 2. (a) A company belongs to a risk class for which the appropriate
discount rate is 10%. It currently has 25000 outstanding
shares selling at Rs. 100 each. The firm is contemplating a
dividend payment of Rs. 5 per share at the end of current
financial year. It expects to have a net income of Rs. 2,50,000
and a proposal for making new investments of Rs. 5,00,000.
Show that under the MM assumptions. The payment of
dividend does not affect the value of the firm. Marks : 15
OR
Explain the factors determining dividend policy.
(b) Explain the types of dividend policy. Marks : 5
OR
Explain the assumptions of MM approach under dividend
theory.
UNIT – III
Q. No. 3.(a) You are given the following estimates. As a Finance Manager,
set up your calculations for the average amount of working
capital required for the year, after making a provision of 10%
for contingencies. Marks : 15
`
1) Amount blocked up for stocks :
Stock of finished products 2,500
Stock of stores, materials 4,000
2) Average credit given
Inland sales : 6 weeks credit 1,56,000
Export sales : 1½ weeks 39,000
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3) Lag in payment of wages and other
outgoings : Wages : 1½ weeks
Stock of materials : 1½ month 24,000
Rent, Royalties etc. : 6 months 5,000
Clerical staff : ½ month 31,200
Manager : ½ month 2,400
Miscellaneous expenses : 1½ months 24,000
4) Payment in advance :
Sundry expenses paid quarterly in advance 4,000
OR
What is Working Capital Management ? Explain the types of
working capital and its significance.
(b) Explain the advantages of Working Capital Management. Marks : 5
OR
Write a short note on : Inventory Management.
UNIT – IV
Q. No. 4. (a) You are a Financial analyst for the little company. The director
of capital has asked you to analyze two proposed capital
investments – Projects X and Y. Each project has a cost of
Rs. 10,000 and the cost of capital for each project is
12%. The project’s expected net cash flows are as follows : Marks : 15
Year Project X Project Y
1 6500 3500
2 3000 3500
3 3000 3500
4 1000 3500
Calculate each project’s payback period, net present value,
internal rate of return and profitability index.
OR
Explain the working capital management in the multinational
firms.
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(b) Write a short note on : Marks : 5
Financial management of multinational corporations.
OR
Explain the various factors which are peculiar to multinational
corporations.
UNIT – V
Q. No. 5.(a) A company wishes to take over company B. The Financial

details of the two companies are as under : Marks : 15
Liabilities Company A Company B
Equity shares (Rs 10 per share) 1,00,000 50,000
Share premium account – 2,000
Profit and loss account 38,000 4,000
Preference shares 20,000 -
10% Debentures 15,000 5,000
Total liabilities 1,73,000 61,000
Fixed Assets 1,22,000 35,000
Net current Assets 51,000 26,000
Total Assets 1,73,000 61,000
Maintainable annual profit
(after tax) for equity shareholder 24,000 15,000
Market price per equity share 24 27
Price-earning ratio 10 09
What offer do you think company-A could make to company-B

in terms of exchange ratio, based on :
a) net assets value
b) earning per share and
c) market price per share which method would you prefer
from Company-A point of view ?
OR
Explain the different types of mergers along with examples.
(b) Explain the characteristics of mergers. Marks : 5
OR
Explain the difference between mergers and take-overs.
________________

Fourth Semester 5 Year B.B.A. LL.B. Examination, June/July 2014 Financial Management

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Fourth Semester 5 Year B.B.A. LL.B. Examination, June/July 2014 Financial Management

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Fourth Semester 5 Year B.B.A. LL.B. Examination, June/July 2014

Instructions : 1. Answer all 5 questions.

Q. No. 1. (a) Ravindra Ltd. has the following capital : Marks : 15

Q. No. 5.(a) A company wishes to take over company B. The Financial

What offer do you think company-A could make to company-B

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