Advanced Financial Management (Finance Elective)

St. Joseph’s College of Commerce B.Com. 2015 Advanced Financial Management (Finance Elective) Question Paper PDF Download

by

 

ST. JOSEPH’S COLLEGE OF COMMERCE (AUTONOMOUS)
END SEMESTER EXAMINATION – SEPT/OCT.2015
B.B.M. –V SEMESTER
FIN 506: ADVANCED FINANCIAL MANAGEMENT (FINANCE ELECTIVE)
Duration: 3 Hours                                                                                             Max. Marks: 100
SECTION – A
I) Answer ALL the questions.  Each carries 2 marks.                                        (10×2=20)
  1. What is Reverse bid?
  2. What motivates an M &A deal?
  3. Compute the value of equity share if the normal ROI is 10%, 14%, 16% from the following information-

  1. Profits/ Earnings to equity shareholders = Rs. 1, 74, 000
  2. No. of equity shares                                     = 20, 000
  4. Is it true that “Post- merger EPS will have an impact on the firm’s value? If so, then reason it out with a brief explanation.
  5. As a budding entrepreneur which form of Project Finance would you choose to finance your project? Give suitable reasons to support your choice.
  6. What is ROCE? Explain its importance. What do financiers derive from this?
  7. What is Free Cash Flow?
  8. Explain the concepts of Asset Strapping and Boot Strapping.
  9. YG Enterprises is expected to generate future profits of Rs. 50, 00, 000. What is the value of business if investments of this type are expected to give an annual return of 18%.
  10. What is Expected Value?
SECTION – B
II) Answer any FOUR questions.  Each carries 5 marks.                                      (4×5=20)
  11. Determine the risk adjusted net present value of the following projects:

Particulars Project X Project Y Project Z
Net Cash Outlays in Rs. 2, 10, 000 1, 20, 000 1, 00, 000
Project Life 5 years 5 years 5 years
Annual Cash Inflow in Rs. 70, 000 42, 000 30, 000
Coefficient of Variation 1.2 0.8 0.4

The company selects the risk-adjusted rate of discount on the basis of the coefficient of variation:

Coefficient of Variation Risk-Adjusted Rate of Return P.V.Factor 1to 5 years at Risk- Adjusted Rate of Discount
0.0 10% 3.791
0.4 12% 3.605
0.8 14% 3.433
1.2 16% 3.274
1.6 18% 3.127
2.0 22% 2.864
More than 2.0 25% 2.689
  12. The profits of Zoya Ltd for the year ending were Rs.60, 00, 000. After setting apart amounts for interest, taxation and other provisions, the net surplus available to the shareholders is estimated at Rs.15, 00, 000. Company’s capital base is 1, 00, 000 shares of Rs.100 each, Rs. 50 paid up per share and Rs.25, 000, 12% Cumulative preference shares of Rs. 100 each. Enquiries in the stock market revealed that shares of companies engaged in similar business and declaring dividend at 15% on equity shares are quoted at a premium of 10%. Find the value per share.
  13. Consider the data given the following table. The information shows the probability distribution of 5 possible outcomes of the project. Compute the Standard Deviation.

Year Likely Outcome in Rs. Probability
1 25, 000 0.15
2 36, 000 0.20
3 74, 000 0.15
4 92, 000 0.20
5 1, 00, 000 0.30
  14. Following are the Balance Sheet of Jai Ltd and Veer Ltd

Liabilities Jai Ltd in Lakhs Veer Ltd in Lakhs
Equity share capital of Rs.10 each 4 1.8
P/L a/c 3 0.8
Reserves 5 1
Debentures 3.5 Nil
Bills payable 0.5 0.4
Creditors 2 1
     
Assets Jai Ltd in Lakhs Veer Ltd in Lakhs
Investments 5 Nil
Fixed Assets 7 3
Current Assets 6 2

The Board of Directors of Jai Ltd approved to take over Veer Ltd. Find out the ratio of exchange of shares based on Book Values.
  15. Explain the contents of a Project Report.
  16. Write a detailed note on Decision Tree Analysis.
SECTION – C
III) Answer any THREE questions.  Each carries 15 marks.                                (3×15=45)                                                                                                
  17. The following information relating to Fortune India Ltd. having two divisions viz. Pharma Division and Fast Moving Consumer Goods Division. Paid up share capital of Fortune India Ltd. Is consisting of 3, 000 lakhs equity shares of Re.1 each. Fortune India Ltd. Decided to de-merge Pharma Division as Fortune Pharma Ltd.., w.e.f. 1.4.2015. Details of Fortune India Ltd..,as on 31.03.2015 and of Fortune Pharma Ltd.., as on 1.04.2015 are given below:

 

 

 

 

Particulars Fortune Pharma Ltd. (Rs.) Fortune India Ltd. (Rs.)
Outside Liabilities    
Secured Loans 400 lakh 3, 000 lakh
Unsecured Loans 2, 400 lakh 800 lakh
Current liabilities and provisions 1, 300 lakh 21, 200 lakh
Assets    
Fixed assets 7, 740 lakh 20, 400 lakh
Investments 7, 600 lakh 12, 300 lakh
Current assets 8, 800 lakh 30, 200 lakh
Loans and advances 900 lakh 7, 300 lakh
Deffered tax/ Misc Exps 60 lakh (200) lakh

Board of Directors of the company have decided to issue necessary equity shares of Fortune Pharma Ltd of Re.1 each, without any consideration to the shareholders of Fortune India Ltd. For that purpose following points are to be considered:

  1. Transfer of liabilities and assets at Book Value.
  2. Estimated profit for the year 2015-16 is Rs.11, 400 lakh for Fortune India Ltd. And Rs. 1, 470 lakh for Fortune Pharma Ltd.
  3. Estimated Market Price of Fortune Pharma Ltd.., is Rs. 24.50 per share.
  4. Average P/E Ratio of FMCG sector is 42 and Pharma sector is 25, which is to be expected for both the companies.

Calculate:

  1. The ratio in which shares of Fortune Pharma are to be issued to the shareholders of Fortune India Ltd.
  2. Expected Market Price of Fortune India Ltd.
  3. Book Value per share of both the companies immediately after demerger.
  18. (a) Write the assumptions, advantages and limitations of CAPM.

(b) A Ltd. Wants to acquire T Ltd.., and has offered a swap ratio of 1:2(0.5 shares for every one share of T Ltd.) Following information is provided:

Particulars A Ltd. T Ltd.
Profit after tax Rs. 18, 00, 000 Rs. 3, 60, 000
Equity shares outstanding (nos.) 6, 00, 000 1, 80, 000
EPS Rs.3 Rs.2
PE Ratio 10 times 7 times
Market Price per share Rs. 30 Rs. 14

Required:

i.                    The number of equity shares to be issued by A Ltd.., for acquisition of T Ltd.

ii.                  What is the EPS of A Ltd. After the acquisition?

iii.                Determine the equivalent earnings per share of T Ltd.

iv.                What is the expected market price per share of A Ltd. After the acquisition assuming its PE multiple remains unchanged?

v.                  Determine the market value of the merged firm.
  19. Explain the various sources of finance for a project.

 
  20. The following is the Balance Sheet of P Ltd. As on 31.03.2012

Liabilities Amount in Rs. Assets Amount in Rs.
Share capital

10,000 12% preference shares of Rs. 10 each fully paid

 1, 00, 000 Sundry assets 5, 48, 000
30,000 equity shares of Rs. 10 3, 00, 000 Preliminary expenses 5, 000
Reserves 10,000 Discount of Debentures 2, 000
Debenture Redemption Fund 20, 000 P&L 35, 000
Depreciation Fund 15, 000    
10% Debentures 50, 000    
Creditors 95, 000    
Total 5, 90, 000   5, 90, 000

The debenture interest is due for 6 months and preference dividend is arrears for one year. Assuming assets are worth their book values. Show value per share if –

a)      Preference shares are preferential as to capital and arrears

b)      Preference shares are preferential as to capital only.
  21. A project with an initial outflow of Rs. 1, 00, 000 has a four year life and a 10% discount rate. The annuity cash flow is Rs.40, 000.

  1. Compute NPV
  2. Measure sensitivity of the project to size, cash flow, life and discount factor.
SECTION – D
IV) Case Study                                                                                                              (1×15=15)                                                                                          
  22. Reliable Industries Ltd. (RIL) is considering a takeover of Sunflower Industries Ltd. (SIL) The particulars of 2 companies are given below:

Particulars Reliable Industries Ltd. Sunflower Industries Ltd.
Earnings after tax Rs. 20, 00, 000 Rs. 10, 00, 000
Equity shares Outstanding 10, 00, 000 10, 00 ,000
Earnings per share 2 1
P E Ratio 10 times 5 times

Find the following:

i.                    What is the market value of each company before merger?

ii.                  Assume that the management of RIL estimates that the shareholders of SIL will accept an offer of one share of RIL for four shares of SIL. If there are no synergic effects. What is the market value of the post merger RIL? What is the new price per share? Are the shareholders of RIL better or worse off than they were before the merger?

iii.                Due to synergic effect, the management of RIL estimates that the earnings will increase by 20%. What is the new post merger EPS and Price per share? Will the shareholders be better off or worse off than before the merger?

 

 

 

 

St. Joseph’s College of Commerce B.B.A. 2015 Advanced Financial Management (Finance Elective) Question Paper PDF Download

by

 

ST. JOSEPH’S COLLEGE OF COMMERCE (AUTONOMOUS)
END SEMESTER EXAMINATION – SEPT/OCT.2015
B.B.M. –V SEMESTER
FIN 506: ADVANCED FINANCIAL MANAGEMENT (FINANCE ELECTIVE)
Duration: 3 Hours                                                                                             Max. Marks: 100
SECTION – A
I) Answer ALL the questions.  Each carries 2 marks.                                        (10×2=20)
  1. What is Reverse bid?
  2. What motivates an M &A deal?
  3. Compute the value of equity share if the normal ROI is 10%, 14%, 16% from the following information-

  1. Profits/ Earnings to equity shareholders = Rs. 1, 74, 000
  2. No. of equity shares                                     = 20, 000
  4. Is it true that “Post- merger EPS will have an impact on the firm’s value? If so, then reason it out with a brief explanation.
  5. As a budding entrepreneur which form of Project Finance would you choose to finance your project? Give suitable reasons to support your choice.
  6. What is ROCE? Explain its importance. What do financiers derive from this?
  7. What is Free Cash Flow?
  8. Explain the concepts of Asset Strapping and Boot Strapping.
  9. YG Enterprises is expected to generate future profits of Rs. 50, 00, 000. What is the value of business if investments of this type are expected to give an annual return of 18%.
  10. What is Expected Value?
SECTION – B
II) Answer any FOUR questions.  Each carries 5 marks.                                      (4×5=20)
  11. Determine the risk adjusted net present value of the following projects:

Particulars Project X Project Y Project Z
Net Cash Outlays in Rs. 2, 10, 000 1, 20, 000 1, 00, 000
Project Life 5 years 5 years 5 years
Annual Cash Inflow in Rs. 70, 000 42, 000 30, 000
Coefficient of Variation 1.2 0.8 0.4

The company selects the risk-adjusted rate of discount on the basis of the coefficient of variation:

Coefficient of Variation Risk-Adjusted Rate of Return P.V.Factor 1to 5 years at Risk- Adjusted Rate of Discount
0.0 10% 3.791
0.4 12% 3.605
0.8 14% 3.433
1.2 16% 3.274
1.6 18% 3.127
2.0 22% 2.864
More than 2.0 25% 2.689
  12. The profits of Zoya Ltd for the year ending were Rs.60, 00, 000. After setting apart amounts for interest, taxation and other provisions, the net surplus available to the shareholders is estimated at Rs.15, 00, 000. Company’s capital base is 1, 00, 000 shares of Rs.100 each, Rs. 50 paid up per share and Rs.25, 000, 12% Cumulative preference shares of Rs. 100 each. Enquiries in the stock market revealed that shares of companies engaged in similar business and declaring dividend at 15% on equity shares are quoted at a premium of 10%. Find the value per share.
  13. Consider the data given the following table. The information shows the probability distribution of 5 possible outcomes of the project. Compute the Standard Deviation.

Year Likely Outcome in Rs. Probability
1 25, 000 0.15
2 36, 000 0.20
3 74, 000 0.15
4 92, 000 0.20
5 1, 00, 000 0.30
  14. Following are the Balance Sheet of Jai Ltd and Veer Ltd

Liabilities Jai Ltd in Lakhs Veer Ltd in Lakhs
Equity share capital of Rs.10 each 4 1.8
P/L a/c 3 0.8
Reserves 5 1
Debentures 3.5 Nil
Bills payable 0.5 0.4
Creditors 2 1
     
Assets Jai Ltd in Lakhs Veer Ltd in Lakhs
Investments 5 Nil
Fixed Assets 7 3
Current Assets 6 2

The Board of Directors of Jai Ltd approved to take over Veer Ltd. Find out the ratio of exchange of shares based on Book Values.
  15. Explain the contents of a Project Report.
  16. Write a detailed note on Decision Tree Analysis.
SECTION – C
III) Answer any THREE questions.  Each carries 15 marks.                                (3×15=45)                                                                                                
  17. The following information relating to Fortune India Ltd. having two divisions viz. Pharma Division and Fast Moving Consumer Goods Division. Paid up share capital of Fortune India Ltd. Is consisting of 3, 000 lakhs equity shares of Re.1 each. Fortune India Ltd. Decided to de-merge Pharma Division as Fortune Pharma Ltd.., w.e.f. 1.4.2015. Details of Fortune India Ltd..,as on 31.03.2015 and of Fortune Pharma Ltd.., as on 1.04.2015 are given below:

 

 

 

 

Particulars Fortune Pharma Ltd. (Rs.) Fortune India Ltd. (Rs.)
Outside Liabilities    
Secured Loans 400 lakh 3, 000 lakh
Unsecured Loans 2, 400 lakh 800 lakh
Current liabilities and provisions 1, 300 lakh 21, 200 lakh
Assets    
Fixed assets 7, 740 lakh 20, 400 lakh
Investments 7, 600 lakh 12, 300 lakh
Current assets 8, 800 lakh 30, 200 lakh
Loans and advances 900 lakh 7, 300 lakh
Deffered tax/ Misc Exps 60 lakh (200) lakh

Board of Directors of the company have decided to issue necessary equity shares of Fortune Pharma Ltd of Re.1 each, without any consideration to the shareholders of Fortune India Ltd. For that purpose following points are to be considered:

  1. Transfer of liabilities and assets at Book Value.
  2. Estimated profit for the year 2015-16 is Rs.11, 400 lakh for Fortune India Ltd. And Rs. 1, 470 lakh for Fortune Pharma Ltd.
  3. Estimated Market Price of Fortune Pharma Ltd.., is Rs. 24.50 per share.
  4. Average P/E Ratio of FMCG sector is 42 and Pharma sector is 25, which is to be expected for both the companies.

Calculate:

  1. The ratio in which shares of Fortune Pharma are to be issued to the shareholders of Fortune India Ltd.
  2. Expected Market Price of Fortune India Ltd.
  3. Book Value per share of both the companies immediately after demerger.
  18. (a) Write the assumptions, advantages and limitations of CAPM.

(b) A Ltd. Wants to acquire T Ltd.., and has offered a swap ratio of 1:2(0.5 shares for every one share of T Ltd.) Following information is provided:

Particulars A Ltd. T Ltd.
Profit after tax Rs. 18, 00, 000 Rs. 3, 60, 000
Equity shares outstanding (nos.) 6, 00, 000 1, 80, 000
EPS Rs.3 Rs.2
PE Ratio 10 times 7 times
Market Price per share Rs. 30 Rs. 14

Required:

i.                    The number of equity shares to be issued by A Ltd.., for acquisition of T Ltd.

ii.                  What is the EPS of A Ltd. After the acquisition?

iii.                Determine the equivalent earnings per share of T Ltd.

iv.                What is the expected market price per share of A Ltd. After the acquisition assuming its PE multiple remains unchanged?

v.                  Determine the market value of the merged firm.
  19. Explain the various sources of finance for a project.

 
  20. The following is the Balance Sheet of P Ltd. As on 31.03.2012

Liabilities Amount in Rs. Assets Amount in Rs.
Share capital

10,000 12% preference shares of Rs. 10 each fully paid

 1, 00, 000 Sundry assets 5, 48, 000
30,000 equity shares of Rs. 10 3, 00, 000 Preliminary expenses 5, 000
Reserves 10,000 Discount of Debentures 2, 000
Debenture Redemption Fund 20, 000 P&L 35, 000
Depreciation Fund 15, 000    
10% Debentures 50, 000    
Creditors 95, 000    
Total 5, 90, 000   5, 90, 000

The debenture interest is due for 6 months and preference dividend is arrears for one year. Assuming assets are worth their book values. Show value per share if –

a)      Preference shares are preferential as to capital and arrears

b)      Preference shares are preferential as to capital only.
  21. A project with an initial outflow of Rs. 1, 00, 000 has a four year life and a 10% discount rate. The annuity cash flow is Rs.40, 000.

  1. Compute NPV
  2. Measure sensitivity of the project to size, cash flow, life and discount factor.
SECTION – D
IV) Case Study                                                                                                              (1×15=15)                                                                                          
  22. Reliable Industries Ltd. (RIL) is considering a takeover of Sunflower Industries Ltd. (SIL) The particulars of 2 companies are given below:

Particulars Reliable Industries Ltd. Sunflower Industries Ltd.
Earnings after tax Rs. 20, 00, 000 Rs. 10, 00, 000
Equity shares Outstanding 10, 00, 000 10, 00 ,000
Earnings per share 2 1
P E Ratio 10 times 5 times

Find the following:

i.                    What is the market value of each company before merger?

ii.                  Assume that the management of RIL estimates that the shareholders of SIL will accept an offer of one share of RIL for four shares of SIL. If there are no synergic effects. What is the market value of the post merger RIL? What is the new price per share? Are the shareholders of RIL better or worse off than they were before the merger?

iii.                Due to synergic effect, the management of RIL estimates that the earnings will increase by 20%. What is the new post merger EPS and Price per share? Will the shareholders be better off or worse off than before the merger?

 

 

 

 

© Copyright Entrance India - Engineering and Medical Entrance Exams in India | Website Maintained by Firewall Firm - IT Monteur