M.Com. (Semester IV) Examination Oct/Nov-2017
ADVANCED COSTING
Day Date: Friday, 17-11-2017 Max. Marks: 50
Time: 02.30 PM to 04.30 PM
Instructions: All questions are compulsory.
Use of calculator is allowed.
Q.1 Choose the alternatives given below. 10
The Investment decisions of the firm are commonly known as the
Short term decisions Capital expenditure decision
Cost of capital Lower level decisions
should also solve the problem of choosing among alternative project.
Financial leverage Investment Evaluation criteria
Capital structure Dividend policy
In method capital project are ranked in order of earning.
Net present value Return on Investment
Payback period Risk Analysis
means the influence of one financial variable over some other
related financial variable.
Cost of capital Leverage
Accounting rate of return IRR
Operating leverage X financial leverage
Trading on equity Combined leverage
EBIT EBT
Combined leverage is also called leverage.
Composite Financial
Operating Capital structure
Capital budgeting decisions can be made by considering the
Cost of capital Capital structure
Dividend on capital Dividend policy
Irrelevance of dividend theorem is developed by
Prof. Miller Modigliani Mr. John Lintner
Mr. Myron Gordon Prof. J.E. Walter
In India forms of dividend permitted are
Cash and stock dividend Bond and script dividend
Property and cash dividend Bond and property dividend
10) pleads that the dividend policy of a company is relevant to the value of
its shares.
Gorden's model Walter model
Prof. Miller Lintner model
Q.2 Write short answer. 10
Factor influencing dividend policy.
Classification of Cost.
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SLR-CJ-44
Q.3 A company proposing to expand its production can go in either for an automatic
machine costing Rs. 2,24,000 with an estimated life 5
1
2
years or an ordinary
machine costing Rs. 60,000 having an estimated life of 8 years. The Annual
sales and cost as estimated are.
05
Particulars Automatic machine Rs Ordinary machine Rs.
Sales 1,50,000 1,50,000
Cost materials 50,000 50,000
Labour 12,000 60,000
Variable overheads 24,000 20,000
Compute comparative profitability of the proposals under pay back method.
A firm sells 2,000 units Rs. 100 per unit. The cost information of the firm is
as under.
Fixed cost Rs. 50,000
Variable cost Rs. 50 per unit
Ascertain its operating profit or earnings before Interest and Tax at current level
and also: Its sales reduce to 1000 units
Its sales increase to 3000 units
05
Q.4 The following are the figures extracted from the books of Solapur Ltd. 10
Sales Rs.5,00,000
Variable cost Re.3,00,000
Fixed cost Rs.1,00,000
Interest 10% on term loan of Rs. 4,00,000
Calculate: Operating Leverage
Financial leverage
combined leverage
OR
A company issues 5000 12% debentures of Rs.100 each at discount of 50%.
The commission payable to underwriters is Rs.25,000. The debentures are
redeemed after 5 years. Compute after tax cost of debt assuming a tax rate of
50%.
Q.5 Solapur Electronics Ltd. is considering purchasing of machine. Two machines
CM and PM are available each costing Rs. 1,00,000. In comparing the
profitability of the machines discounted rate of 10% is to be used. Earning after
taxation is expected to be as follows.
10
Year Machine Machine
First 30,000 10,000
Second 40,000 30,000
Third 50,000 40,000
Fourth 30,000 60,000
Fifth 20,000 40,000
Indicate which machine would be more profitable under:
Pay back method
Return an Investment method
OR
The following data relates to the two companies:
Particulars Ram Ltd Rs. Laxman Ltd. Rs
Sales 5,00,000 5,00,000
Variable cost 2,00,000 1,50,000
Fixed cost 1,50,000 2,00,000
Interest 50,000 50,000
Ascertain the operating, Financial and composite leverages for the 2 companies.