M.Com. (Semester IV) (CBCS) Examination Oct/Nov-2017
ADVANCED COSTING
Day Date: Friday, 17-11-2017 Max. Marks: 70
Time: 02.30 PM to 05.00 PM
Instructions: All questions are compulsory.
Use of calculator is allowed.
Q.1 Choose the alternatives given below. 14
The period during which the of capital investment is recovered is
termed as the payback period.
Total earnings Total revenue
Total cost Total profit
A project cost is Rs. 6,00,000 and its cash inflows for First year Rs. 1,60,000,
Second year Rs. 2,00,000, Third year Rs. 4,80,000, Fourth year Rs. 40,000
then it's payback period is
2 years 2 months 2 years 9 months
2 years 6 months 2 years 3 months
affects the value of equity shares of company.
Cost of capital Interest on debentures
Amount of capital Current assets
Leverage is also known as trading on equity.
Financial Operating
Combined Composite
Under net present value method the cash flow from the project are reduced
to their
Book value Return value
Market value Present value
Irrelevance of dividend theorem is developed by
Mr. Gordon Mr. Lintner
Prof Walter Prof. Miller and Modigliany
serves as an important tool of financial planning of business
enterprises.
Capital Leverage
Dividend policy Cost of capital
The ultimate objective of dividend policy is
Stability of dividend
Wealth maximization of share holders
Ploughing back of profit
Confidence among shareholder
In India forms of dividend permitted are dividend.
Cash and property Bond and property
Cash and scrip Cash and stock
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10) If Sales Rs. 1,00,000 variable cost 25% of sales fixed cost Rs. 30,000 and
interest Rs. 10,000 then operation profit (EBIT) is Rs.
70,000 60,000
35,000 45,000
11) When sales are Rs. 12,00,000 Variable cost 40% of sales, Fixed cost Rs.
2,00,000, Interest Rs. 16,000 and tax is Rs. 1,50,000. Then the degree of
Operating leverage is times.
2.033 1.385
1.044 1.145
12) An expenditure incurred to increase an earning capacity of the business is a

Revenue expenditure Capital expenditure
Deferred revenue expenditure Variable expenditure
13) Capital expenditure is the expenditure incurred on
Current assets Fictitious assets
Fixed assets Current liabilities
14) method select the assets which pays the highest not the
Earliest.
Return on investment Pay back period
Capital Rationing All the above
Q.2 Write short notes on: 14
Capital Rationing
Forms of dividend
Q.3 An investment of Rs. 6,00,000 in a capital project is expected to have cash
inflows as under
1st year Rs. 3,00,000
2nd year Rs.2,50,000
3rd year Rs. 2,00,000
4th year Rs.1,50,000
5th year Rs. 1,00,000
The effective life of the asset is Five years and end of Fifth year its scrap
value would be Rs. 20,000.
The required rate of return is 10%. The present value factor is 1st
year 0.909, 2nd year 0.826, 3rd year 0.751, 4th year 0.683 and 5th year
0.621.
Is investment desirable?
A company issued 5000, Debentures of Rs. 1000 each at premium of
10%. The costs of floatation are 2%. The rate of tax applicable to the
company is 60%. Compute cost of debt capital.
Q.4 Explain the investment evaluation criteria in capital budgeting. 14
OR
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The company has to make a choice between three possible investments
project B and C the immediate capital outlays on each being Rs. 11,000.
Each project will continue for Five years and it has been decided that a
discount rate of 10% is acceptable for all the three project. The cash flows for
these projects are
Year
Discounted factor
at 10% p.a.
Annual cash flows
A B c
Rs. Rs. Rs. Rs.
First year 0.909 1,000 2,000 3,000
Second year 0.826 2,000 3,000 4,000
Third year 0.751 3,000 5,000 3,500
Fourth year 0.683 4,000 3,000 2,500
Fifth year 0.621 5,000 2,000 2,000
Which project would you recommend under
Pay back method
Net present value method
Q.5 Calculate operating leverage, financial leverage, combined leverage and EPS
for financial loans plan II and III respectively from the following information
relating to the operations and capital structure of ABC Ltd. also present your
comments as a financial expert.
14
Installed capacity 2,000 units
Actual production and sales 800 units
Selling price per unit Rs. 150
Variable cost per unit Rs. 100
Fixed cost Rs. 30,000
Expected tax rate 50%
Capital structure Plan I
Rs.
Plan II
Rs.
Plan III
Rs.
Equity shares Rs. 100 each 50,000 75,000 25,000
12% debt 50,000 25,000 75,000
OR
Explain significance and Factors influencing dividend policy.