M.Com. (Semester IV) (CBCS) Examination, 2017
ADVANCED COSTING (PAPER-III)
Day Date: Wednesday, 19-04-2017 Max. Marks: 70
Time: 02.30 PM to 05.00 PM
N.B. All questions are compulsory.
Use of Calculator is allowed
Q.1 Choose the correct alternatives form the following. 14

The period during which the total cost of the capital investment is
recovered is termed as the
Pay back period Accounting period
Earning period Life of project
Under Return on Investment method capital projects are ranked in
order of
Pay back period Earning
Cost of capital Rate of dividend
serves as an important tool of financial planning of
business enterprise.
Dividend policy Leverage
Capital None of the above.
When sales Rs. 60,000, variable cost 40% of sales, fixed cost Rs.
1,00,000, Interest is Rs. 8,000 and Tax is Rs. 75,600. The degree of
operating leverage is times.
1.385 2.040 1.480 1.428
I.R.R stands for
Internal Rate of Return Internal Ratio Rate
Investment Return Rate Interest Rate of Return
Cost of capital affects the value of of the company.
Equity shares Preference shares
Debentures Fixed assets
A project cost is Rs. 3,00,000 and its cash inflows first year Rs.
80,000, second year Rs. 1,00,000, third year Rs. 2,40,000, fourth
year Rs. 20,000 its payback period is years.
3 ½ 4 ½ 2 ½ 5 ½
Page 1 of 3
Market price per share is computed by multiplying the price earnings
ratio by
EBT EBIT EPS EAT
10) Stability of dividend leads to
Stability in market price of share
Satisfaction of investors desire
Confidence among shareholder
All of the above
11) Under method, the cash flow from the project are
reduced to their present value.
Profitability Index Return on Investment
Pay back Net present value
12) Capital budgeting decisions can be made by considering
The rate dividend The cash available
The availability of working capital The cost of capital
13) Financial leverage is also known as
Combined leverage Operating leverage
Trading on equity EBT
14) Irrelevance of dividend theorem is developed by
Mr. Lintner Prof. Walter
Prof. Miller and Modigliani Mr. Gordon
Q.2 Write short notes on. 14
Kinds of Leverage
Factors influencing dividend policy
Q.3 Two alternatives are available having cost price Rs. 2,00,000 each.
The following inflows are expected during five years. Life of both
machine is five years
07
Year Machine A
Rs.
Machine B
Rs.
First year 20,000 60,000
Second year 60,000 80,000
Third year 80,000 1,00,000
Fourth year 1,20,000 60,000
Fifth year 80,000 40,000
The company is expecting 10% return on its capital. The net present
value of Rs.1@ 10% are as under.
1st year 0.909
2nd year 0.826
3rd year 0.751
4th year 0.683
5th year 0.620
Evaluate the proposal on the basis of Net Present Value Method.
Page 2 of 3
The Balance sheet of Moon light Ltd. as on 31st March 2017 is as
under.
07
Balance Sheet
Liabilities Rs. Assets Rs.
Equity capital (Rs. 10 each) 60,000 Fixed assets 1,50,000
Retained Earnings 20,000 Current Assets 50,000
10% debentures 80,000
Current Liabilities 40,000
2,00,000 2,00,000
The company's total assets turnover ratio is 3.00, its fixed operating
costs are Rs. 1,00,000 and its variable operating cost ratio is 40%.
The income tax rate is 30%.
Calculate Earnings after Tax, EBIT and EBT.
Q.4 The following figures extracted from the books of ABC Ltd. 14
Sales Rs. 5,00,000
Variable cost Rs. 3,00,000
Fixed cost Rs. 1,00,000
Interest 10% on the term loan of Rs. 4,00,000
Calculate operating leverage, financial leverage and combined
leverage.
OR
Calculate cost of preference share capital of the following cases.
A company issues 1000 10% preference shares of Rs. 100 each
of at discount of 5%. Costs of raising capital are Rs. 2000
compute cost of preference capital.
Assume that the firm pays tax at 50%. Compute the after tax cost
of capital of a preference share sold at Rs. 100 with dividend
and a redemption price of Rs. 110, if the company redeems it in
five years.
Q.5 A company is considering to purchase a machine. Two machines each
costing Rs. 40,000 is available. Earning after taxation but before
charging depreciation are
14
Year Machine A Machine B
1 12,000 8,000
2 18,000 16,000
3 20,000 24,000
4 15,000 18,000
5 10,000 14,000
Evaluate two alternatives according to Pay Back method, Return on
Investment method (Average earning on average investment) and net
present value method (Cost of Capital
Present value factors 10% are as first year 0.909, second year
0.826, third year 0.751, fourth year-0.683, fifth year-0.621.
OR
Discuss the major factors that influence the dividend policy of a
company.