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LOYOLA COLLEGE (AUTONOMOUS), CHENNAI 600 034
B.Com.DEGREE EXAMINATION -COMMERCE
SIXTH SEMESTER APRIL 2018
CO 6608- FINANCIAL MANAGEMENT
Date: 17-04-2018 Dept. No. Max. 100 Marks
Time: 09:00-12:00
PART A
ANSWER ALL THE QUESTIONS (10 X 20 MARKS)
1. What is financial management?
2. Classify the pattern of capital structure.
3. Why is Operating leverage exiting?
4. Illustrate Indifference point
5. Expand the term
6. What is the meaning of WACC?
7. Give formula of redeemable Cost of debt.
8. Akash ltd offers for public subscription equity shares of Rs.10 each at a premium of 10%. The company pays an underwriting commission of on the issue price. The equity shareholders expect a dividend of 15%.
Calculate the cost of capital
Calculate the cost of equity capital, if the market price of the share is Rs.20.
9. A projects cost Rs. 00,000and yields annual cash inflow of Rs 20,000 for 7 years Calculate pay back period.
10. Find out the economic order quantity from the following particulars:
Annual usage Rs. 1,20,000
Cost of placing and receiving one order: Rs. 60
Annual carrying cost 10% of inventory value
PART B
ANSWER ANY FOUR QUESTIONS X 10 40 MARKS)
11. What are the functions of a finance manager?
12. a. Explain the various stages in capital budgeting process
b. Discuss the importance of Capital Budgeting.
13. Discuss the various factors affecting the requirement of Working Capital
Management.
14. Komal Ltd wants to raise Rs. 2,50,000 as additional capital. It has two mutually
exclusive alternative financial plans. The current EBIT id Rs. 8,50,000 which is
likely to remain unchanged. The relevant information is:
Present capital structure: 1,50,000 equity shares of Rs. 10 each and 10% Bonds of Rs.10,00,000
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Tax rate 50%
Current EBIT: Rs. 8,50,000
Current EPS Rs.2.50
Current market price :Rs. 25 per share
Financial Plan I 10,000 Equity Shares at Rs. 25 per share
Financial Plan II 12 Debentures of Rs.2,50,000
You are required to calculate: Earnings per share Indifference point between Plan I and Plan II.
15. Calculate the degree of Operating Leverage, Financial Leverage,
Combined
Leverage, from the following information and interpret the results.
Details
Company P
Company QCompany R
Output in units
3,00,000
75,000 5,00,000
Fixed Cost Rs.
3,50,000
7,00,000 75,000
Variable cost per unit Rs
1.00
7.50 0.10
Interest Expenses Rs
25,000
40,000 Nil
Selling Price per unit Rs
3.00
25.00 .50
16. `From the following particulars. Calculate Net operating cycle, Number of
operating cycles in a year, The amount of Working Capital.
Details
Period Covered
360 days
Average period allowed by suppliers
30 days
Average period allowed to debtors
45 days
Raw material consumed during the year
Rs.6,00,000
Average stock of raw material
Rs.50,000
Work in progress inventory
Rs.5,00,000
Average Work in progress inventory
Rs.30,000
Finished goods inventory
Rs.8,00,000
Average finished goods stock held
Rs.40,000
Total cost of sales
Rs.8,40,000
17. A company has to choose any one of the following two mutually exclusive projects.
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Investment required for each project is Rs.15,000 and both have to be depreciated
on straight line method assuming that income tax is 50%.
Year
Project A
Project B
1
4,200
4,200
2
4,800
4,500
3
7,000
4,000
4
7,000
5,000
5
2,000
10,000
Calculate Payback Period.
PART C
ANSWER ANY TWO QUESTIONS X 20 =40 MARKS)
18. Discuss briefly the significance and objectives of financial Management.
19. X Co desires to purchase a business and has consulted you and one point on which you are asked to advise them is the average amount of working capital which will be required in the first year's working.
You are given the following estimates and are instructed to add 10% to your computed
figures to allow for contingencies.
Figure for the year
Average amount locked up in stocks: Rs.
Stock of finished goods 5,000
Stock of stores and material 8,000
Average credit given
Inland sales 6 weeks 3,12,000
Export sales 1 ½ weeks 78,000
Lag in payment of wages and other outgoings:
Wages 1 ½ weeks 2,60,000
Stores materials etc. 1 ½ months 48,000
Rent, royalties etc. 6 months 10,000
Clerical staff salary ½ month 62,400
Manager salary ½ month 4,800
Miscellaneous expenses 1 ½ months 48,000
Payment in advance:
Sundry expenses (paid quarterly in advance) 8,000
Undrawn profits on the average throughout the year 11,000
Set up your calculation for the average amount of working capital required.
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20. A limited is considering investing in a project requiring a capital outlay of Rs.2,00,000.
Forecast of annual income after depreciation but before tax is as follows"
Year
PBT in Rs.
PVIF at 10%
1
1,00,000
.909
2
1,00,000
.826
3
80,000
.751
4
80,000
.683
5
40,000
.621
Depreciation may be taken as 20% on original cost and taxation at 50% of net income. Calculate:
Pay-back period
Discounted pay-back period
Rate of return on original investment
Net present value
Profitability index method
21. Neeraon Moody Ltd., has an all equity capital structure consisting of 5000 equity shares of 100 each. The management plans to raise Rs.3,00,000 for expansion programme. The expected EBIT after expansion is Rs. 1,50,000. The company has the following four options:
To issue 3000 equity shares of Rs. 100 each
To issue 1000 equity shares Rs.100 each and issue preference shares for Rs.2,00,000
To borrow a bank loan for Rs. 3,00,000 at 10% interest p.a..
To issue 1000 equity shares of Rs.100 each and for the balance of Rs.2,00,000 a bank loan is raised at 10% p.a.
Suggest the best alternative with the justifications assuming that income Tax of
50%.