GUG/W/18/10696 1 P.T.O
Master of Business Administration (CBCS and Old Pattern) Third Semester Old+CBCS
PAPER-MBA235B PCB3EB1 Advanced Financial Management
P. Pages 2 GUG/W/18/10696
Time Three Hours Max. Marks 70

Notes 1. Attempt any five question.
2. All questions carry equal marks.
3. Use PVF Table.
1.
The sales and earning before interest and taxes (EBIT) for a company during the year 2017 were 17,50,000 and 4,50,000 respectively. During that year the expenses on account of interest was 4,000 and on preferred dividend was 10,000 these fixed charges are expected to continue during 2017. For the year the company is planning an expansion which will cost 1,75,000 and expected to increase EBIT to 5,50,000. The company is considering the following alternatives to finance the expansion.
Issue of 5,000 equity share of 35 each. The company presently has 40,000 equity shares.
Issue 1,75,000 of 15 year bond at 8%.
Issue of additional pref. shares at 8.5% for 1,75,000
Assume income tax at 50%.
You are required to calculate
EPS of 2018 at the expected EBIT of 5,50,000 for three financing options.
ii) The equivalence level of EBIT between debt and equity.
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2.
Unani Cosmetics manufacturer of herbal cosmetic product, has an annual sales of 50 lakhs. It offers 30 days credit on sales. The fixed cost are 5 lakhs and variable cost are 80% of the sales. The company is considering a change in its credit policy. Based upon its knowledge of market response, it has estimated likely sales figures against each of the proposed collection period as follows
Policy
A
B
C
D
Collection period (days)
45
60
75
90
Projected sales in lakhs)
56
60
62
63
if expected rate of return is which policy should be adopted and why
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3.
The FFM Ltd. is in the tax bracket of 35% and discounts its cash flows of 16%. In the acquisition of an asset worth 10 lakhs, it is given two offers either to acquire the assets by taking a bank loan at 15% p.a. repayable in five yearly instalments of 2 lakhs each plus interest or to lease in the asset at yearly rental of 3,24,000 for 5 years in both cases, the instalment is payable at the end of year applicable rate of depreciation is 15% on WDV. You are required to suggest the better alternative.
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GUG/W/18/10696 2
4.
X Ltd. is considering a project with the following cash flow.
Year
Purchase of Plant
Running Cost
Savings
0
70,000


1

20,000
60,000
2

25,000
70,000
The cost of capital is measure the sensitivity of the project to changes in the level of-
Running cost
Saving
Plant Cost
Which factor is the most sensitive?
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5.
You have been provided the following financial data of two companies.
Particular
K Ltd.
R Ltd.
EAT
7,00,000
10,00,000
Equity share outstanding
2,00,000
4,00,000
EPS
3.5
2.5
P/E Ratio
10 times
14 times
Compare R Ltd. is acquiring the company K Ltd exchanging 1:1 basis.
You are required to calculate
The EPS subsequent to merger.
ii) Change in EPS for the shareholder of R ltd. K ltd.
iii) The Market value of after merger.
iv) The profits accruing to shareholder of both companies.
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6.
Describe the MM theory of capital structure with taxation and without taxation. Also discuss the criticism of MM Hypothesis.
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7.
What are the basic steps are involved in the credit investigation process?
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8.
Discuss the features and different elements of leasing.
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9.
Describe ESOP with its advantages and disadvantages in detail.
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10.
Write a note on any two.
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Public offerings.
Indian Depository Receipts.
Corporate risk analysis.
Financial evaluation of mergers.