Loyola College M.Com April 2007 Financial Management Question Paper PDF Download

November 8, 2017 by 01 prakash

LOYOLA COLLEGE (AUTONOMOUS), CHENNAI – 600 034

TH 56

M.Com. DEGREE EXAMINATION – COMMERCE

FOURTH SEMESTER – APRIL 2007

CO 4801 / 4800 / 1807 – FINANCIAL MANAGEMENT

Date & Time: 25/04/2007 / 9:00 – 12:00 Dept. No. Max. : 100 Marks

SECTION – A

Answer ALL questions: ( 10 x 2 = 20 )

Give any four advantages of financial forecasting?
Under what situations investment decisions are mainly guided by payback period method?

What do you mean by Combined Leverage?
How ABC analysis enables in controlling inventory?
What is permanent working capital?
What are the components of cost of capital?
What is meant by ‘capital rationing’?
A company has the following capital structure:

Equity share capital Rs. 1,00,000

10% Preference share capital 1,00,000

8% Debentures 1,25,000

The present EBIT is Rs.50,000. Calculate the financial leverage assuming that company is in 50% tax bracket.

A project costs Rs.15,60,000 and yields annually a profit of Rs.2,70,400 after depreciation of 12% p.a but before tax at 25%. Calculate pay-back period.

MNR Ltd. has the following capital structure: (Rs.lakhs)

Equity capital 30

Debt (16%) 60

Corporate tax rate is 40%. The cost of equity is assumed to be 24%. Calculate the weighed average cost of capital of the company.

SECTION – B

Answer any FIVE questions: ( 5 x 8 = 40)

11. How would you justify the adoption of present value maximization as an apt substitute for it?

Examine the inter-relationship among the investment, financing and dividend decisions.
What are the objectives of cash management?
What do you mean by optimal capital structure? Make out a list of factors determining optimum capital structure.

Write note on (a) M-M Theory and (b) Trading on equity

X Ltd. is expecting an annual EBIT of Rs.1 lakh. The company has Rs.4.00 lakhs in 10% debentures. The cost of equity capital is 12.5%. You are required to calculate the value of the firm.

A company is considering raising of funds of about Rs.100 lakhs by one of two alternative

methods – 14% institutional term loan and 13% non-convertible debentures. The term loan option would attract no major incidental cost. The debentures would have to be issued at a discount of 2.5% and would involve cost of issue of Rs.1 lakh. Advice the company as to the better option based on the effective cost of capital in each case. Assume a tax rate of 50%.

The earnings per share of a company are Rs.16. The market rate of discount applicable to the company is 12.5%. Retained earnings can be employed to yield a return of 10%. The company is considering a pay-out of 25%, 50% and 75%. Which of these would maximize the wealth of shareholders?

SECTION – C

Answer any TWO questions: ( 2 x 20 = 40 )

A firm can purchase for Rs.2,500 an asset having life of 5 years after which its salvage value is Rs.500. The firm provides depreciation on straight line method. Purchasing and using the asset will increase the firm’s expected revenues by Rs.1,500 per year and will raise its expected operating expenses (not including depreciation and interest) by Rs.700 per year. The corporate tax is 50% and the cost of capital of the firm is 10%.

The firm can also lease the asset for a yearly rental of Rs.650. The incremental revenue will be same at Rs.1,500 per year and the increase in firm’s expected non-depreciation expense is Rs.600 per year only. Evaluate the proposals.

Two projects M and N which are mutually exclusive are being under consideration. Both of them require an investment of Rs.1,00,000 each. The net cash inflows are estimated as under :

Year

Rs.

10,000

40,000

30,000

60,000

90,000

30,000

50,000

80,000

40,000

60,000

The company’s targeted rate of return on investments is 12%. You are required to assess the projects on the basis of their present values, using (1) NPV method and (2) Profitability index method.

Present values of Re.1 at 12% interest for five years are given below:

1^st year : 0.893; 2^nd year : 0.797; 3^rd year : 0.712; 4^th year : 0.636; 5^th year : 0.567.

The cost sheet of PQR Ltd. provides the following data :

	Cost per unit
Raw material	Rs.50
Direct Labour	20
Overheads (including depreciation of Rs.10)	40
Total cost	110
Profits	20
Selling price	130

Average raw material in stock is for one month. Average material in work-in-progress is for ½ month. Credit allowed by suppliers: one month; credit allowed to debtors : one month. Average time lag in payment of wages : 10 days; average time lag in payment of overheads 30 days. 25% of the sales are on cash basis. Cash balance expected to be Rs.1,00,000. Finished goods lie in the warehouse for one month.

You are required to prepare a statement of the working capital needed to finance a level of the activity of 54,000 units of output. Production is carried on evenly throughout the year and wages and overheads accrue similarly. State your assumptions, if any, clearly.

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Loyola College M.Com April 2008 Financial Management Question Paper PDF Download

November 8, 2017 by 01 prakash

LOYOLA COLLEGE (AUTONOMOUS), CHENNAI – 600 034

M.Com. DEGREE EXAMINATION – COMMERCE

RO 35

FIRST SEMESTER – APRIL 2008

CO 1807 – FINANCIAL MANAGEMENT

Date : 28-04-08 Dept. No. Max. : 100 Marks

Time : 1:00 – 4:00

SECTION-A

Answer all questions: Each question carries TWO marks. (10×2=20)

What are financial decisions taken by the modern financial manager?
Mr. X intends to have return of Rs.10,000 per annum for perpetuity. In case the discount rate is 20%. Calculate the present value of this perpetuity.
Distinguish capital structure from financial structure.
What do you mean by leverage in financial management?
Define Explicit and Implicit cost of capital.
The current market price of an equity share of a company is Rs.90. The current dividend per share is Rs.4.50. In case the dividends are expected to grow at the rate of 7%. Calculate the cost of equity capital?
Define the term ‘Capital Budgeting’.
What do you mean by working capital management?
Calculate the optimum production quantity per production run from the following information:

Estimated annual production 90,000 units.

Setup cost per production run Rs. 50

Carrying cost per unit per annum Rs.1.

Distinguish Bonus shares from right shares.

SECTION-B

Answer any FIVE of the following. Each question carries EIGHT marks. (5×8=40)

Explain the benefits and Risks of holding inventories.
Briefly explain the factors affecting Dividend policy.
A company has sales of Rs.1 lakh. The variable costs are 40% of the sales while fixed operating costs amount to Rs.30,000. The amount of inter on long-term debt is Rs.10,000.

You are required to calculate the composite leverage and illustrate its impact if sales increased by 5%.

A Ltd intends to issue new equity shares. It’s present equity shares are being sold in the market at Rs.125 a share. The company’s past record regarding payment of dividend is as follows:

1994: 10.70%; 1995: 11.45%; 1996: 12.25%; 1997:13.11%; 1998:14.03%

The floatation costs are estimated at 3% of the current selling price of the shares. You are required to calculate:

growth rate in dividends
cost of funds raised by issue of equity shares assuming that the growth rate as calculated under (a) above will continue for ever.
cost of new equity shares.

Good company has currently an ordinary share capital of Rs 25 lakhs consisting of 25,000 shares of Rs.100 each. The management is planning to raise another Rs.20 lakhs to finance a major programme of expansion through one of four possible financing plans. The option are:

Entirely through ordinary shares
10 lakhs through ordinary shares and Rs.10 lakhs through long-term borrowings at 8% interest per annum.
5 lakhs through ordinary shares and Rs.15 lakhs through long-term borrowings at 9% interest per annum.
10 lakhs through ordinary shares and Rs.10 lakhs through preference shares with 5% dividend.

The company’s expected earnings before interest and Tax will be Rs.8 lakhs. Assuming corporate Tax of 50% determine the Earnings per share in each alternative.

From the following information determine the optimal combination of projects assuming that the projects are divisible. The total funds available Rs.3,00,000.

Project	Required Initial Investment	NPV at the appropriate cost of capital
A——	1,00,000	20,000
B——	3,00,000	35,000
C——	50,000	16,000
D——-	2,00,000	25,000
E——-	1,00,000	30,000

A firm is considering pushing up its sales by extending credit facilities to the following categories of customers:

Customers with a 10% risk of non-payment, and
Customers with a 30% risk of non-payment.

The incremental sales expected in case of category (a) are Rs.40,000 while incase of category (b) they are Rs.50,000.

The cost of production and selling costs are 60% of sales while the collection costs amount to 5% of sales in case of category (a) and 10% of sales in case of category (b).

You are required to advise the firm about extending credit facilities to each of the above categories of customers.

Explain the advantages of leasing.

SECTION-C

Answer any TWO questions (2×20=40)

From the following information extracted from the books of a manufacturing company, compute the operating cycle in days and the amount of working capital required:

Period covered………. 365 days.

Average period of credit by suppliers…… 16 days

Rs.

Average total of debtors outstanding	4,80,000
Raw materials consumption	44,00,000
Total production cost	1,00,00,000
Total cost of sales	1,05,00,000
Sales for the year	1,60,00,000

Value of Average stock maintained:

Raw material	3,20,000
Work in Progress	3,50,000
Finished goods	2,60,000

You are required to determine the weighted average cost of capital (Ko) of the K.C. Ltd using (i) book value weights; and (ii) Market value weights. The following information is available for your perusal:

Book value capital structure Rs

Debentures (Rs. 100 per debenture)	8,00,000
Preference Shares (Rs. 100 per share)	2,00,000
Equity shares (Rs. 100 per share)	10,00,000
	20,00,000

All these securities are traded in the capital markets. Recent prices are debentures @ Rs. 110, Preference Shares @ Rs. 120 and Equity Shares @ Rs.22. Anticipated external financing opportunities are:

100 per debenture redeemable at par: 20 year maturity, 8% Coupon rate, 4% floatation costs, sale price Rs. 100.
100 preference share redeemable at Par: 15 year maturity, 10% dividend rate, 5% floatation costs, sale price Rs. 100.
Equity shares Rs.2 per share floatation costs, sale price Rs.22.

In addition, the dividend expected on the equity share at the end of the year Rs.2 share, the anticipated growth rate in dividends is 5% and the company has the practice of paying all its earning in the form of dividends. The corporate tax rate is 50%.

Write notes on the following:

Importance of financial management.
Factors determining working capital
Modigilani-Miller approach of capital structure.
Significance of operating and Financial leverages.

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Loyola College M.Com Nov 2008 Financial Management Question Paper PDF Download

November 8, 2017 by 01 prakash

LOYOLA COLLEGE (AUTONOMOUS), CHENNAI – 600 034

QB 16

M.Com. DEGREE EXAMINATION – COMMERCE

FIRST SEMESTER – November 2008

CO 1807 – FINANCIAL MANAGEMENT

Date : 04-11-08 Dept. No. Max. : 100 Marks

Time : 1:00 – 4:00

PART-A

Answer ALL questions. (10 x 2 = 20)

Explain the term operating leverage?
Classify the patterns of capital structure?
What are the importance of K.
Discuss the purpose of issue of right shares.
What are the advantages to the company at the time of issue of Bonus Shares?
How do you view the operating cycle in Working Capital Management.
Illustrate the motive for holding cash.
What are the credit polices available in working capital management.
How do you process the Capital Budgeting?
Write short note on Finance Lease.

PART – B

Answer any five questions. (5 x 8 = 40)

Explain the factors affecting Capital Structure.
State the SEBI Guidelines for Right Issue.
Discuss the Factors Affecting Dividend Policy.
The relevant financial information for Xavier Limited for the year ended

2007 is given below.

Profit and Loss Account Balance Sheet Data

(Rs. million) Beginning of 2007 End of 2007

Sales 80 Inventory 9 12

Cost of goods sold 56 Accounts receivable 12 16

Accounts payable 7 10

What is the length of the operating cycle? The cash cycle? Assume 365 days to a year.

15. M Ltd. is considering relaxing its collection efforts. Existing sales are Rs.50,00,000, Average

collection period is 25 days, P/V Ratio 25%, Cost of Capital 15% and Bad debts 4%.

The relaxation of the collection effort will increase sales by Rs.6,00,000, increase average

collection period to 40 days and increase bad debts to 6%. The company can save collection

expenses of Rs.10,000. Advice the company.

16. A Ltd. issued Rs.100, 15% debt at par repayable in 3 annual installments of Rs.30, Rs.30 and

Rs.40 at the end of the 7^th, 8^thand 9^th years respectively. The issued cost is 3% and the tax rate

60% Calculate kd.

17. A Ltd. has a share capital of Rs.1,00,000 divided into shares of Rs.10 each. It has major

expansion programme requiring an investment of another Rs.50,000. The management is

considering the following alternatives for raising this amount:

(i) Issue of 5,000 equity shares of Rs.10 each.

(ii) Issue of 5,000, 12% preference shares of Rs.10 each.

(iii) Issue of 10% debentures of Rs.50,000.

The company’s present earnings before interest and tax (EBIT) are Rs.40,000 p.a. You are

required to calculate the effect of each of the above modes on financing of the earnings per share

(EPS) presuming:

(a) EBIT continues to be the same even after expansion.

(b) EBIT increases by Rs.10,000.

18. Operating Leverage = 2; Combined Leverage = 3, at present sales level of 10,000 units; selling

price = Rs.12; Variable cost = 50% of sales; Tax Rate = 50%

The company has no preference share capital. If the rate of interest of the company’s debt is 16%

Calculate the amount of debt to the capital structure.

PART – C

Answer any two questions (2 x 2 = 40)

19. A project requires investment of Rs.1,00,000 and the working capital of Rs.20,000 at the end

of the first year. The project has a life of 5 years and the scrap value of Rs.20,000. The project

yields the following profits before tax.

Year Profit before Tax (PBT)

Rs.

1 20,000

2 40,000

3 60,000

4 50,000

5 30,000

Calculate

(i) pay back period, (PBP),

(ii) Average Rate of Return (ARR),

(iii) Net present value (NPV) and

(iv) Profitability Index PI

(v) Discounted pay back period

Assume cost of capital is 10% and tax @ 50%

20. A Ltd, is presently operating at 60% capacity and producing 36,000 units per annum. In the

next year it plans to operate at 90% capacity.

The present cost price structure per unit is – Raw Material Rs.4; Wages Rs.2; Variable overheads

Rs.2; Fixed overheads Re.1 and selling price Rs.10

1. Raw material will remain in stores for 2 month.

2. WIP for 1 month.

3. Finished goods for 2 months.

4. Debtors are allowed 2 months credit and creditors are allowed 3 months credit.

5. Lag in payment of wages and overheads = 1 month each.

Ascertain the profit at 90% capacity level and the working capital necessary to sustain this production, assuming that the cash balance of 5% of the gross working capital is required. Calculate the Cash Cost of Working Capital .

21. You are required to determine the weighted average cost of capital (Ko) of the K.C. Ltd. using (i) book value weights; and (ii) market value weights. The following is available for your perusal:

The K.C. Ltd.’s present book value capital structure is :

Rs.

Debentures (Rs.100 per debenture) 8,00,000

Preference Shares (Rs.100 per share) 2,00,000

Equity Shares (Rs.10 per share) 10,00,000

20,00,000

All these securities are traded in the capital markets. Recent prices are, debentures @ Rs.100, preference shares @ Rs.120 equity shares@ Rs.22. Anticipated external financing opportunities are –

(i) Rs.100 per debentures redeemable at par: 20-year maturity, 8% coupon rate, 4% floatation costs, sale price Rs.100.

(ii) Rs.100 preference share redeemable at par: 15-year maturity, 10% dividend rate, 5% floatation costs, sale price Rs.100.

(iii) Equity shares: Rs.2 per share floatation costs, sale price Rs.22.

In addition, the dividend expected on the equity share at the end of the year in Rs.2 per share; the anticipated growth rate in dividends is 5% and the company has the practice of paying all its earning in the form of dividends. The corporate tax rate is 50%.

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Loyola College M.Com April 2009 Financial Management Question Paper PDF Download

November 8, 2017 by 01 prakash

LOYOLA COLLEGE (AUTONOMOUS), CHENNAI – 600 034

M.Com. DEGREE EXAMINATION – COMMERCE

KP 36

FIRST SEMESTER – April 2009

CO 1807 – FINANCIAL MANAGEMENT

Date & Time: 17/04/2009 / 1:00 – 4:00 Dept. No. Max. : 100 Marks

PART-A

Answer ALL questions (10 x 2 = 20)

What is Financial Leverage?
Illustrate the point of indifference.
Discuss the features of an appropriate capital structure.
Explain the Traditional approach to cost of capital.
Classify the different form of Dividend.
What are the advantages issues of bonus shares to the investors.
How do you classify the working capital policy?
What are the significance of capital budgeting?
Write short note on Operating Lease.
Analyze the Implication of capital Rationing.

PART – B

Answer any five questions. (5 x 8 = 40)

Discuss the factors affecting Working Capital Management.
State the SEBI Guidelines for Bonus Issue.
Explain the cost benefit identification of a project.
The following annual figures relate to XYZ Co.

Rs.

Sales(at two months ‘ credit) 36,00,000

Materials consumed (suppliers extend two months credit) 9,00,000

Wages paid (monthly in arrear) 7,20,000

Manufacturing expenses outstanding at the end of the year 80,000

(Cash expenses are paid one month in arrear)

Total administrative expenses, paid as above 2,40,000

Sales promotion expenses, paid quarterly in advance 1,20,000

The company sells its products on gross profit of 25 percent counting depreciation as part of the cost of production. It keeps one month’s stock each of raw materials and finished goods, and a cash balance of Rs.1,00,000.

Assuming a 20 percent safety margin, calculate the working capital requirements of the

company on cash cost basis. Ignore work – in – process.

A Ltd. has been buying items in lots of 1,200 quantity units which is 6 months requirement.

Cost per unit is Rs.12, ordering cost Rs.8 per order and carrying cost is 25%.

Calculate the saving per year by buying in economic lot quantity.

Following are the details regarding three companies A Ltd., B Ltd., and C Ltd.:

A Ltd. B Ltd. C Ltd.

r = 15% r = 5% r = 10%

Ke = 10% Ke = 10% Ke = 10%

E = Rs.8 E = Rs.8 E = Rs.8

Calculate the value of an equity share of each of these companies applying Walter’s formula when dividend payment ratio (D/P ratio) is: (a) 50%, (b) 75%, (c) 25%. What conclusion do you draw?

A company has sales of Rs.1lakh. The variable costs are 40% of the sales while the fixed

operating costs amount to Rs.30,000 . The amount of interest on long-term debt is

Rs.10,000. You are required to calculate the composite leverage and illustrate its a impact if

sales increase by 5%.

A Ltd. has an Equity Capital consisting of 5,000 Equity shares of Rs.100 each. It plans to

raise Rs.3,00,000, for the finance expansion programme and as identify four options for

raising funds.

Issued Equity shares of Rs.100 each.
Issue 1,000 Equity shares of Rs.100 each and 2,000, 8% preference shares of Rs.100 each.
Borrow of Rs.3,00,000 at 10% interest p.a.
Issued 1,000 Equity shares of Rs.100 each and Rs.2,00,000, 10% Debentures.

The company has EBIT of Rs.1,50,000 of its expansion. Tax Rate is 50%

Suggest the source in which funds should be raised.

PART – C

Answer any two questions. (2 x 10 = 20)

X Ltd. has an existing sales of 10,000 units at Rs.300 per unit, variable cost is Rs.200 per

unit and Fixed cost is Rs.3,00,000 per annum. Present credit policy is 1 month credit period.

The company plans to increase credit period for 2 months or 3 months and has made to

following estimates.

Existing Proposed

Credit period 1 month 2 months 3 months

Increase in sales – 15% 30%

% of bad debts 1% 3% 5%

There will be on increased in fixed cost by Rs.50,000 if sales increases beyond 25% of the present level. The cost of capital is 20%

Suggest the suitable credit period to be adopted.

From the following details relating to K Ltd.

Rs.

EBIT 23,00,000

Less: 8% Debenture Interest 80,000

22,20,000

Less: 11% Loan Interest 2,20,000

EBT 20,00,000

Less: Tax @ 50% 10,00,000

EAT 10,00,000

No. of Equity shares (Rs.10 each) = 5,00,000 shares.

Market price per share = Rs.20.

PE Ratio = 10

The company has undistributed Reserves of Rs.20,00,000. It requires Rs.30,00,000 to redeem the debentures and modernize its plant which has the following financial options –

Borrow 12% loan from Banks.
Issue 1,00,000 Equity shares of Rs.20 each and the balance from a 12% Bank loan.

The company expects to improve its rate of return by 2% as a result of modernization. However,

the PE Ratio is likely to reduce 8 if the entire amount is borrowed. Advice the company.

A Limited company has the following capital structure:

Rs.

Equity Share Capital (2,00,000 shares) 40,00,000

6% Preference shares 10,00,000

8% Debentures 30,00,000

80,00,000

The market price of the company’s equity shares is Rs.20. It is expected that company will pay a current dividend of Rs.2 per share which will grow at 7 per cent for ever. The tax rate may be presumed at 50 per cent. You are required to compute the following:

(a) A weighted average cost of capital based on existing capital structure.

(b) The new weighted average cost of capital if the company raises an additional Rs.20,00,000 debit

by issuing 10 per cent debentures. This would result in increasing the expected dividend to Rs.3

and leave the growth rate unchanged but price of share will fall to Rs.15 per share.

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Loyola College M.Com Nov 2010 Financial Management Question Paper PDF Download

November 8, 2017 by 01 prakash

LOYOLA COLLEGE (AUTONOMOUS), CHENNAI – 600 034

M.Com. DEGREE EXAMINATION – COMMERCE

FIRST SEMESTER – NOVEMBER 2010

CO 1807 – FINANCIAL MANAGEMENT

Date : 30-10-10 Dept. No. Max. : 100 Marks

Time : 1:00 – 4:00

Section – A

Answer all questions:- 10 x 2 = 20

Define Financial Management.
Discuss the features of an appropriate capital structure.
What do you mean by indifferent point?
Explain the term “Operating Cycle”.
List out the factors affecting cost of capital?
what is IRR?
Annual requirement 10,000 units

Cost per unit Rs.6

Ordering cost Rs. 120 per order

Rent , insurance etc per unit per annum Rs.3

Rate of return on investment 20%.

Calculate EOQ.

What is concentration banking?
A company has 15% perpetual debt of Rs. 1,00,000. The tax rate is 35%. Determine the cost of Debt (Kd), assuming (a) debt is issued at par (b) issued at 10% discount
A company has sales of Rs. l lakhs. The variable costs are 40% of the sales while the fixed operating costs amount to Rs.30,000. The amount of interest on long – term debt is Rs.10,000. You are required to calculate the composite leverage.

Section – B

Answer any FIVE questions: 5 x 8 = 40

Explain the following theories of capital structure.
a) Net Income Approach
b) Net Operating Income Approach
Discuss the goals of financial management.
Explain the factors affecting dividend policy.

Variable Expenses as a percentage of sales is 75%, Interest Rs.300: Operating

Leverage= 6, Financial Leverage = 4 Tax rate = 50%

Prepare Income statement

From the following data compute the operating cycle in days.

Rs.

Average Debtors 4,80,000

Raw materials consumed 44,00,000

Total production cost 1 crore

Total cost of sales 1,05,00,000

Sales 1,60,00,000

Average stock of Raw materials 3,20,000

Average stock of WIP 3,50,000

Average stock of Finished goods 2,60,000

Creditors payment period 16 days

A Ltd has an equity capital consisting of 5,000 Equity shares of Rs 100 each. It plans

to raise Rs. 3,00,000 for the financial expansion programme and as to identify four

options for raising funds.

Issue Equity shares of Rs 100 each.
Issue 1,000 Equity shares of Rs.100 each and 2,000 8% Preference shares of Rs 100 each
Borrow of Rs 3,00,000 at 10% interest p.a
Issue 1000 Equity shares of Rs.100 each and Rs. 2,00,000, 10% debentures

This company has EBIT of Rs 1,50,000 of its expansion. Tax rate is 50%. Suggest the

source in which funds should be raised.

X Ltd. has the following projects available for investment

Projects	Investments in Rs.	NPV in Rs.
A	1,00,000	20,000
B	3,00,000	35,000
C	50,000	16,000
D	2,00,000	25,000
E	1,00,000	30,000

The total funds available for investment is Rs. 3,00,000 which project will you choose

if a) Projects are divisible b) Projects are indivisible

18.Calculate the value of an equity shares of company X Ltd. and Y Ltd. from the

following particulars by applying Walters formula when dividend payment ratio (D/P

ratio) is (a)60% and (b)70%

X Ltd. Y Ltd.

r = 10% 25%

Ke = 20% 20%

E = Rs.10 Rs. 10

Section – C

2 x 20 = 40

Answer any TWO questions:

AB ltd gives you the following figures

EBIT 3,00,000

Less: 12 % Debenture Interest 60,000

2,40,000

Less: Income tax @ 50% 1,20,000

EAT 1,20,000

No. of Equity shares = 40,000

1,20,000

EPS = ———— = Rs 3 per share

40000

Market price per share = Rs.30

Market Price Per share 30

Price Earning Ratio (PE) = ———————— = —— = 10

EPS 3

The company has undistributed reserves of Rs.6,00,000 It requires

Rs.2,00,000 for expansion. This amount will earn the same rate of return on funds

employed as it is earned now.

You are informed that the Debt-Equity ratio = (Debt/ Debt + Equity) higher than

35% will reduce the PE ratio to 8 and raise the interest rate on additional funds

borrowed to 14%. The company would prefer to raise the entire funds required

through equity or through debt. Which would you recommend?

R ltd has the following capital structure.

Equity capital ( Rs. 20 each) 40 Lakhs

6% preference share capital( Rs. 100 each) 10 lakhs

8% debentures 30 lakhs

Market price of equity is Rs. 20

The current dividend is Rs. 2 per share which is expected to grow at 7% per annum.

The tax rate is 50%.

Calculate.

Weighted average COC based on book value.
The new weighted average COC if the company an additional Rs. 20 lakhs as 10% debentures to finance for expansion. This would result in increasing expected dividend per share to Rs. 3 and increase growth rate of dividend to 10% But the market price of equity share will fall to Rs. 15.

X Ltd. manufactures T.V. sets. From the credit period and likely sales of TV’s are

given below. Recommend the credit period to be adopted each of the customers A, B &C.

Credit period No. of T.V. sets likely to be sold

A B C

30 days 1,000 1,500 –

60 days 1,000 2,300 1,000

90 days 1,000 2,500 1,500

Selling price of T.V. is Rs. 9,000, PV Ratio 20% and the cost of capital is 20%. Assume the

number days in a year as 360.

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Loyola College M.Com April 2012 Financial Management Question Paper PDF Download

November 7, 2017 by 01 prakash

LOYOLA COLLEGE (AUTONOMOUS), CHENNAI – 600 034

M.Com. DEGREE EXAMINATION – COMMERCE

FIRST SEMESTER – APRIL 2012

CO 1807 – FINANCIAL MANAGEMENT

Date : 25-04-2012 Dept. No. Max. : 100 Marks

Time : 9:00 – 12:00

Section – A

Answer all questions: 10 x 2 = 20

What is Financial Leverage?
How do you classify the patterns of Capital Structure?
What do you mean by “IRR”?
Explain the two types of working capital?
What is the significance of Capital Budgeting?
What will be the value of Rs.1000 deposits every year at 10% interest at the end of 5 years?
A person received an annuity of Rs.5000 for four years. If the rate of interest is 10%. What will be

the present value of annuity?

The New project under consideration requires Rs. 30,00,000. The financing option are-

i,Issue of Equity shares of Rs. 100 each

ii,Issue Equity shares of Rs. 20,00,000 and 15% debentures for Rs. 10,00,000

Tax rate is 50%.Calculate the indifference point EBIT

A Company has 15% perpetual debt of Rs. 1, 00,000. The tax rate is 35% determine the cost of debt

(Kd) assuming a) debt is issued at par, b) issued at 10% discount

A company has sales of Rs. 1. lakh. The variable costs are 40% of the sales while the fixed operating

costs amount to Rs.30,000. The amount of interest on long – term debt is Rs.10,000. You are required

to calculate the composite leverage.

Section – B

Answer any FIVE questions: 5 x 8 = 40

Discuss the Factors affecting Capital Structure
Explain the different types of Leasing.

13.Dicuss the advantages of Bonus Shares.

Operating Leverage = 2 : Combined leverage= 3, at present sales level of 10000 units; selling price=

Rs.12; Variable cost= 50% of sales Tax rate = 50%. The company has no preference share capital.

If the rate of Interest of the company debt is 16% calculate the amount of Debt to the capital structure.

From the following data compute the operating cycle in days.

Rs.

Average Debtors 4,80,000

Raw materials consumed 44,00,000

Total production cost 1 crore

Total cost of sales 1,05,00,000

Sales 1,60,00,000

Average stock of Raw materials 3,20,000

Average stock of WIP 3,50,000

Average stock of Finished goods 2,60,000

Creditors payment period 16 days

A Ltd. is considering in purchase of machine of two models X and Y. The estimated cash inflow and certainty equivalent are as follows.

Year	Cash inflow	certainty equivalent of X	Cash inflow	certainty equivalent of Y
0	-30,000	1	-40,000	1
1	15,000	.95	25,000	.90
2	15,000	.85	20,000	.80
3	10,000	.70	15,000	.70
4	10,000	.65	10,000	.60

Risk free discount rate is 5%. Suggest to the company in purchasing of Machine X or Machine Y.

A Ltd. requires 90,000 units of certain item annually. The cost per unit is Rs. 3, ordering cost is Rs.300 per order and carrying cost Rs. 6 per unit, per year.

Calculate (i) EOQ.

(ii) How many orders to be placed during the year.

(iii) What should the firm do, if the supplier offers discounts as follows :-

Order x discount

4,500 – 5,999 2%

6000 and above 3%

Calculate the value of an equity shares of company X Ltd. and Y Ltd. from the

following particulars by applying Walters formula when dividend payment ratio is (a)60% and (b)70%

X Ltd. Y Ltd.

r = 15% 20%

Ke = 10% 10%

E = Rs.10 Rs. 10

Section – C 2 x 20 = 40

Answer any TWO questions:

From the following details relating to K ltd.

EBIT 23,00.000

Less: – 8% Debenture Int 80,000

22,20,000

Less:- 11% Loan Int 2,20,000

EBT 20,00,000

Less:- Tax at 50% 10,00,000

EAT 10,00.000

No of Equity shares (Rs 10 each) = 5,00,000 shares Market Price per shares = Rs 20

PE ratio = 10. The company has undistributed Reserves of Rs 20,00.000. It requires Rs, 30.00.000 to redeem the debentures and modernize its plant which has the following financial option-

Borrow 12% loan from banks
Issue 1,00.000 Equity shares of Rs. 20 each and balance from a 12% bank loans

The Company expects to improve its rate of return by 2% as a result of modernization However the PE ratio is likely to reduce to Rs. 8 if entire amount is borrowed. Advice the company.

A project requires investment of Rs.1,00,000 are the working capital of Rs. 20,000 at the end of the first year. The project has a life of 5 years and the scrap value of Rs.20,000. The projects yields the following profits before tax:

Year Profit before Tax (PBT)

Rs.

1 20,000

2 40,000

3 60,000

4 50,000

5 30,000

Calculate

(i) Pay- back period (PBP)(ii) Average Rate of Return (ARR).

(iii) Net Present Value (NPV) and(iv) Profitability Index PI.

(v) Discounted pay- back period. Assume the Cost of Capital is @ 10% and Income Tax Rate is @50%.

A Ltd,wishes to raise an additional finance of Rs.10 lakhs to meet its investment plans. It has Rs.2,10,000 in the form of retained earnings available for investment. The following are the further details:–

Debt Equity Ratio = 3:7
Cost of debt (Kd)
Upto Rs.1,80,000 = 10%
Over Rs.1,80,000 = 16%
EPs = Rs.4
Dividend payout Ratio = 50%
Expected growth rate of dividend = 10%
Current market price per share = Rs.44
Tax rate = 35%

i,You are required to determine the pattern for raising additional finance assuming the company intends to maintain its existing debt equity ratio.

ii, Determine the cost of additional debt.

iii,Determine the cost of equity capital and retained earnings.

Compute the W.A Cost for additional finance using book value as weights.

Existing sales Rs. 2,40,000, Average collection period 30 days. The company proposals to recognize its credit period as follows:

Proposed increase in credit Increase over existing

period beyond 30 days sales

Rs.

15 days 12,000

30 days 18,000

45 days 21,000

60 days 24,000

P.V. Ratio is 33 1/3%. Cost of capital 20%. Evaluate the alternatives.

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Loyola College B.Com Corporate & Secretaryship Nov 2008 Financial Management Question Paper PDF Download

October 23, 2017 by 01 prakash

LOYOLA COLLEGE (AUTONOMOUS), CHENNAI – 600 034

B.Com. DEGREE EXAMINATION – BUS.ADMIN&CORP.SECRE.

QB 26

THIRD SEMESTER – November 2008

CO 3201/BU 3201 – FINANCIAL MANAGEMENT

Date : 13-11-08 Dept. No. Max. : 100 Marks

Time : 9:00 – 12:00

SECTION – A

Answer all the following questions: (2×10=20)

What is financial management?
State any two factors that determine the capital structure of a firm.
What is time value of money?
Explain the cost of equity.
Give any two merits of debenture issue.
The capital structure of Reena Ltd. consists of Equity and debenture in the proportion of 70% and 30% respectively. The cost of equity is 15%. The cost of debenture is 10%. Calculate weighted average cost of capital.
The capital structure of a company consists of 10% preference share capital of Rs.1,00,000 , 10% debenture of Rs.2,00,000 and equity share capital @ Rs.10 each of Rs.1,00,000. It has an EBIT of Rs.60,000. The company is in 50% tax bracket. Calculate financial leverage of the company.
A project requires an investment of Rs.10,00,000. The plant required under the project will have a scrap value of Rs.80,000 at the end of its useful life of 5 years. The profits after tax are as follows:

Year	1	2	3	4	5
Rs.	50,000	75,000	1,25,000	1,30,000	80,000

Calculate Accounting rate of return.

Calculate the Debtors collection period in days from the following:

Debtors on 1.1.2006 Rs.400

Debtors on 31.12.2006 Rs.220

Credit sales during the year Rs.3000

Period covered 365 days

State True or false:

The optimum capital structure is obtained when the market value per equity share is the maximum.
A company cannot make a bonus issue without making the existing partly paid shares as fully paid up.

SECTION – B

Answer any five questions: (5×8=40)

The following data pertain to Forge Limited:

Existing capital structure: 10 lakh equity shares of Rs.10 each.

Tax rate: 50%

Forge limited plans to raise additional capital of Rs.100 lakhs for financing an expansion project. It is evaluating two alternative financing plans: (i) issue of 10,00,000 equity shares of Rs.10 each and (ii) issue of Rs.100 lakh debentures carrying 14% interest. Calculate the EBIT level at which investors would be indifferent to the two options.

a) Abu Ltd has raised funds through issue of 20,000 debentures of Rs.100 each at a discount of Rs.10 per debenture with 10 year maturity. The coupon rate is 16%. Floatation cost is Rs.2 per debenture. The debentures are redeemable at a premium of 10%. Tax rate is 30%. Calculate the cost of debentures.

b) Xyz ltd issued 1,00,000 equity shares of Rs.10 each at a premium of Rs.5 each. The company incurred Rs.15,000 expenses on issue. The shareholders expect a dividend of 18% per annum. Calculate the cost of equity.

The following is the balance sheet of zee co.,

Liabilities	Rs.	Assets	Rs.
Equity capital(Rs.10 per share)	60,000	Net fixed assets	1,50,000
10% Long-term debt	80,000	Current assets	50,000
Retained earnings	20,000
Current liabilities	40,000
	2,00,000		2,00,000

The company’s total assets turnover ratio is 3. Its fixed operating cost are Rs.1,00,000 and its variable operating costs ratio to sales is 40%. The income tax rate is 50%. Calculate operating, financial and combined leverages.

Compute the pay-back period under a) traditional pay-back method and b) discounted pay-back method.

Initial investment Rs.80,000

Estimated life 5years

Earnings after tax: Rs.

End of year 1 6,000

2 14,000

3 24,000

4 16,000

5 Nil

Depreciation has been calculated under straight-line method. The cost of capital can be taken at 20% p.a.

The directors of Bata Company wishes to ascertain the working capital required to meet the planned production of 275600 units during the year. The cost of production is Rs. 180 per unit, comprising of raw material – Rs.90, direct labour – Rs.40 and overheads Rs.50. Selling price is Rs.200 per unit. Raw material is in stock for 4 weeks.

Work in progress (assume 50% completion) is in stock for 3 weeks

Finished good is in stock for 5 weeks. Credit allowed by suppliers is 4 weeks

Credit allowed to debtors is 6 weeks

Lag in payment of wages is 2.5 weeks and overheads is 2 weeks

Cash at bank is expected to be Rs. 50,000. 60% of the company’s sales are for credit.

“The financial goal of a firm should be to maximize profit and not wealth”. Do you agree with this statement? Comment.

What are the different sources of internal financing? Explain them with its merits.

What is working capital management? What are the factors that determine the working capital needs of an enterprise?

SECTION – C

Answer any two questions: (2×20=40)

Explain the meaning of the terms “dividend” and “dividend policy”. Discuss the main determinants of dividend policy of a firm.

The following is the figures of Kline Ltd:

Rs.

EBIT 20,00,000

Less: debenture interest@5% 50,000

Loan interest @ 10% 1,50,000 2,00,000

EBT 18,00,000

Less: Tax@ 50% 9,00,000

EAT 9,00,000

Number of equity shares @ Rs.10 each 4,50,000

Earnings per Share 2

Market price per share 24

P/E ratio 12

The company has undistributed reserves of Rs.10,00,000. It is in need of Rs. 20,00,000 to modernize the plant. It has identified the following financial options:

Raise a long term loan at 11%
Issue 1,00,000 equity share of Rs.20 each

The company expects to increase its rate of return by 2% as a result of modernization, but the P/E ratio is likely to reduce to 10 if the entire amount is raised through term loan.

A company is considering to purchase a machine. Two machines are available X and Y costing Rs.90,000 each. The Cash flow after tax are expected to be as follows:

Year	‘X’ machine Rs.	‘Y’ machine Rs.
1	25,000	15,000
2	30,000	25,000
3	35,000	30,000
4	25,000	40,000
5	20,000	30,000

Evaluate two alternatives & suggest which machinery should be purchased according to:

Internal rate of return
Net present value method (cost of capital 10%).

Loyola College B.Com April 2007 Financial Management Question Paper PDF Download

October 20, 2017 by 01 prakash

TH 23

LOYOLA COLLEGE (AUTONOMOUS), CHENNAI – 600 034

B.COM. DEGREE EXAMINATION – COMMERCE

SIXTH SEMESTER – APRIL 2007

CO 6604 – FINANCIAL MANAGEMENT

Date & Time : 16.04.2007/9.00-12.00 Dept. No. Max. : 100 Marks

Section: A

Answer any ten only: 10 x 2 = 20

1) What are the major types of financial decisions that a business firm makes?

2) Pradeep placed Rs.1, 000 in a savings account earning 8% interest compounded

Annually. How much money will he have in the account at the end of 4 years?

3) What is Capital Expenditure Budget?

4) A project costs Rs.40, 00,000 and yields annually a profit of Rs.6, 00,000 after

Depreciation @12.5% but before tax at 50%. Calculate the payback period.

5) What is meant by ‘Operating Cycle Concept’ in management of working capital?

6) The current market price of an equity share of a company is Rs.90. the current

dividend per share is Rs.4.50. In case the dividends are expected to grow at the rate of

7%. Calculate the cost of equity capital?

7) State whether each of the following statements is “True” or “False”

It is risky to have a high operating leverage, since even a slight fall in sales would result in a disproportionately large fall in profits.
The ideal situation is to have a high financial leverage and low operating leverage.

8) Briefly explain the trading on equity.

9) What is meant by explicit cost of capital?

10) Calculate degree of operating leverage from the following data:

Sales 2, 00,000 units @ Rs.4 per unit.
Variable cost per unit @ Re. 0.70
Fixed cost Rs.2, 00,000
Interest charges Rs.7,336.

Section – B

Answer any five only. 5 x 8 = 40

11) “The operative objective of financial management is to maximize wealth of the firm”.

Discuss.

12) What do you mean by Optimum Capital Structure? Make a list of factors determining

Optimum Capital Structure.

Explain various determinants of working capital of a concern.

Using the information given below, compute the Pay-Back Period under (a) traditional Pay-Back Method, and (b) Discounted Pay-Back Method and Comment on the results.

Initial Outlay Rs.80,000

Estimated Life 5 Years

Profit After Tax:

End of Year 1 Rs.6,000

14,000
24,000
16,000
Nil

Depreciation has been calculated under straight-line method. The cost of capital may be taken at 20%p.a and the P.V of Rs.1 at 20% p.a is given below:

Year: 1 2 3 4 5

P.V factor .83 .69 .58 .48 .40

From the following information, extracted from the books of a manufacturing company, compute the operating cycle in days and the amount of working capital required:

Period covered 365 days

Average period of credit allowed by suppliers 16 days

Rs.

Average total of Debtors outstanding 2,40,000

Raw Material consumption 22,00,000

Total Production cost 50,00,000

Total Cost of Sales 52,50,000

Sales for the year 80,00,000

Value of Average Stock maintained 1,60,000

Work in progress 1,75,000

Finished Goods 1,30,000

ABC Ltd. has an EBIT of Rs.1, 60,000. Its capital Structure consists of the following securities:

10% Debentures Rs.5,00,000

12%Prefernce shares Rs.1,00,000

Equity shares of Rs.100 Rs.4,00,000

The company is in the 55% tax bracket. You are required to determine:

The Company’s EPS.
The percentage change in EPS associated with 30% increase in EBIT.
The degree of financial leverage.

(A) For varying level of debt-equity mix, the estimates of the cost of debt and equity capital after tax are given below:

Debt as % of total Cost of Debt Cost of Equity

Capital Employed

0 7.0 15.0

10 7.0 15.0

20 7.0 16.0

30 8.0 17.0

40 9.0 18.0

50 10.0 21.0

60 11.0 24.0

(B) The shares of a chemical company are selling at RS.20 per share. The firm had paid dividend @ Rs.2 per share last year. The estimated growth of the company is approximately 5% per year.

Determine the cost of equity capital of the company.
Determine the estimated market price of the equity share if the anticipated growth rate of the firm rises to 8%.

18) A) X.Ltd. is expecting annual EBIT of RS.1, 00,000. The company has

Rs.4, 00,000 in 10% Debentures. The equity capitalization rate is 12.5 %. The company desires to redeem debentures of Rs.1, 00,000 by issuing additional equity shares of Rs.1, 00,000.

You are required to calculate the value of the firm and the overall cost of capital based on Net Income (NI) Approach.

B) X Ltd. has an EBIT of Rs.1, 00,000. Its cost of debt is 10% and the outstanding debt amounts to Rs.4, 00,000. The overall capitalization rate is 12.5%. The company decides to raise a sum of Rs.1, 00,000 through debt at 10% and uses the proceeds to pay off the equity shareholders.

You are required to calculate the total value of the firm and also the equity capitalization rate under Net Operating income Approach (NOI)

Section – C

Answer any Two only. 2 x 20 = 40

A Limited company is considering investment in a project requiring a capital outlay of Rs.1, 00,000. Forecast for annual income after depreciation but before tax is as follows:

Year. Rs.

50,000
50,000

40,000

40,000
20,000

Depreciation may be taken as 10% on original cost and taxation at 50% of net income. You are required to evaluate the project according to each of the following methods.

Pay Back Method
Rate of Return on average investment method.
Discounted cash flow method taking cost of capital as 10%
Net present value index method.
Internal rate of return method.

The Board of Directors of RRLtd. requests you to prepare a statement showing the working capital requirements forecast for a level of activity of 3,12,000 units of production.

A ) The following information is available for your calculation:

Raw Materials Rs.180 per unit.

Direct Labour Rs. 80 per unit

Overheads Rs.150 per unit

————–

Rs.410 per unit

Profit Rs. 120 per uint

————–

Selling price Rs.530 per unit.

B) 1) Raw materials are in stock on average one month.

2) Materials are in process, on average 2 weeks.

3) Finished goods are in stock, on average one month.

4) Credit allowed by suppliers one month.

5) Time lag in payment from debtors 2 months.

6) Lag in payment of wages 1 ½ weeks.

7) Lag in payment of overheads is one month.

20% of the output is sold against cash. Cash in hand and at bank is expected to be Rs.1, 20, 000. It is to be assumed that production is carried on evenly throughout the year, wages and overheads accrue similarly and a time period lot 4 weeks is equivalent to a month.

You are required to determine the weighted average cost of capital (Ko) of the J. Ltd. using 1) Book Value Weights and the 2) Market Value weights. The following information is available for your perusal:

The J.Ltd. Present book value capital structure is:

Debentures (Rs.100 per debenture) 8,00,000

Preference shares (Rs.100 per share) 2,00,000

Equity shares (Rs.10 per share) 10,00,000

All these securities are traded in the capital markets. Recent prices are debentures @ Rs.110, Preference shares @Rs.120 and Equity shares @Rs.22. Anticipated external financing opportunities are:

100 per debentures redeemable at par: 20 year maturity, 8% coupon rate, 4% flotation costs, sale price Rs.100.
100 Preference share redeemable at par: 15 year maturity, 10% dividend rate, 5% floatation cost, sale price Rs.100.
Equity shares: Rs.2 per share flotation costs, sale price Rs.22.

In addition, the dividend expected to on the equity share at the end of the year is Rs.2 per share; the anticipated growth rate in dividends is 5% and the company has the practice of paying all its earning in the form of dividends. The corporate tax rate is 50%.

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Loyola College B.Com April 2008 Financial Management Question Paper PDF Download

October 20, 2017 by 01 prakash

LOYOLA COLLEGE (AUTONOMOUS), CHENNAI – 600 034

B.B.A.,B.Com. DEGREE EXAMINATION – BUS.ADM.COMMERCE

RO 9

THIRD SEMESTER – APRIL 2008

CO 3201 – FINANCIAL MANAGEMENT

Date : 05/05/2008 Dept. No. Max. : 100 Marks

Time : 1:00 – 4:00

SECTION – A

Answer all questions: (10 x 2 = 20)

Explain the following:

Wealth maximization
Working capital
Pay back period
Net present value
Indifference point EBIT
Annuity
Operating Leverage
Cost of capital
Earning per share

Net operating income

SECTION – B

Answer any five questions: (5 x 8 = 40)

11 Explain the factors that determine the Capital Structure?

Define Cost of Capital? explain its features and importance?
Explain the functions of financial manager in large manufacturing firm?

14 Ramco ltd is considering a major expansion of its production facilities involving

a cost of Rs 50 lakhs and the following alternatives financing options are

available

Particulars Rs in Lakhs

A B

Share Capital 20 10

14% Debentures 20 15

Loan @ 18% 10 25

—- —

Total 50 50

Expected rate of return on total Capital Employed is 25% and corporate tax @50%. Compute EPS and choose the best alternative two models.

HLL is considering purchasing of new machineries A and B have been suggested.

Details of which are as follows

Particulars

A(Rs) B(Rs

Cash out flows 400000 500000

Cash inflows

1 40000 120000

2 120000 160000 3 160000 200000 4 240000 120000

5 160000 80000

The cost of capital is 15% state which machine you consider

financially preferable using NPV Method.

A company issues 10% Debentures of Rs 100000 the company is in 55% tax

bracket. Calculate the cost of the debt (before as well as after tax) if the

debentures are issued 1) issued at par 2) 15% discount 3) 20% Premium

A choice is to be made between two competing project which required an investment of Rs 50000 and expected to generate net cash inflow as under:

Yrs A (Rs) B (Rs)

1 25000 10000

2 15000 12000

3 10000 18000

4 ——- 25000

5 12000 8000

6 6000 4000

Evaluate the project proposal under pay- back period.

M&M has sales of Rs 1000000, variable cost of Rs 700000 and fixed cost of

Rs 200000 and debt of Rs 500000 at 10 % interest. What are the operating,

financial and combined leverage? If the firm wants to double its EBIT, how much

of a raise in sales would be needed as a percentage?

SECTION – C

Answer any two questions: (2 x 20 = 40)

Rack & co has the following capital structure:

Particulars Rs

4000 Equity shares of Rs 100 each 400000

10% preference shares 100000

11% Debentures 500000

The current market price of the share is Rs 102. the company is

expected to declare a dividend if Rs 10 in the current year, with an expected

growth rate of 10%. The applicable tax rate is 50%

a) Find out the cost of equity capital and the WACC
b) Assuming that the company can raise Rs 300000 12% Debentures, find out

the new WACC if the dividend rate is increased from 10% to 12% growth rate is

reduced from 10 to 8% and the market price is reduced to Rs 98

Sain Gobain provides the following particulars relating to its Capital:

Particulars Amount in Rs per unit

Raw material 84

Direct Labour 36

Over heads 36

Profit 44

Average stock holding period:

Raw material 1 month, Work in Progress (50% completed), 1/2 month, finished goods 1 month

Credit allowed by Suppliers and Customers 1 and 2 months respectively

Average time lag in the payment of wages and overheads ½ months Required cash in hand and at bank Rs 300000

25% of the out put is sold for cash. For an expected sale of 120000 units.

Work out the working capital requirement if the firm.

ITC has the capital Structure consist of the following:

Particulars Rs

Equity Share of Rs 100 each 2000000

Retained Earnings 1000000

9% Preference Shares 1200000

7% Debentures of Rs 100 each 80000

The company requires an additional capital of Rs 1200000 to finance its expansion it expects to earn 12% on its total capital employed after expansion. It has the following financing options:

20000 equity shares at a premium of Rs 25 per share
10% preference shares of Rs 100 each
8% Debentures of Rs 100 each

It is estimated that the P/E ratio in the case of equity shares, preference and debentures finance would be 15, 12, and 10 respectively. If the tax rate is 50% which financial option would you recommend?

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Loyola College B.Com April 2008 Financial Management (2) Question Paper PDF Download

October 20, 2017 by 01 prakash

LOYOLA COLLEGE (AUTONOMOUS), CHENNAI – 600 034

B.Com. DEGREE EXAMINATION – COMMERCE

RO 31

SIXTH SEMESTER – APRIL 2008

CO 6604 – FINANCIAL MANAGEMENT

Date : 16/04/2008 Dept. No. Max. : 100 Marks

Time : 9:00 – 12:00

SECTION A

Answer All questions: (10×2=20 marks)

List out the objectives of financial management.
What is financial forecasting?
What do you mean by indifference point EBIT?
Define the term optimum capital structure.
Define the concept of ‘cost of capital’.
A company offers for public subscription equity shares of Rs. 10 each at a premium of 10%. The company pays 5% of the issue price as underwriting commission. The rate of dividend expected by the equity shareholders is 20%. You are required to calculate the cost of equity capital.
A company has sales of Rs. 1 lakh. The variable costs are 40% of the sales while the fixed operating costs amount to Rs. 30,000. The amount of interest on long-term debt is Rs.10,000. You are required to calculate the composite leverage.
What is trading on equity?
Fixed Cost – 10,000

Operating Leverage – 2

Interest – 2,000

Calculate Financial Leverage.

A limited company is considering investing in a project requiring a capital outlay of Rs. 2,00,000. Forecast for annual income after depreciation but before tax is as follows:

Year 1 2 3 4 5

Amount in Rs. 1,00,000 1,00,000 80,000 80,000 40,000

Depreciation may be taken as 20% on original cost and taxation at 30% of net income.

You are required to calculate payback period.

SECTION B

Answer any Five Questions: (5×8=40 marks)

What are the main functions of the modern finance manager?
What are the various features of on appropriate capital structure?
“Capital Expenditure decisions are by far the most important decisions in the field of financial management” Elucidate.
Calculate the working capital required for the production 1,80,000 units per annum. Cost per unit of the product comprises of

Material – Rs. 20

Labour – Rs. 15

Overhead – Rs. 5

Selling price – Rs. 50

Raw material is in stock for one month, processing time \month, finished stock storage

period – 1\Months, period of credit to customers – 2 Month, Credit received from suppliers – 1

Month, lag in payment of wages – \ Month.

Cash in hand to be maintained at Rs. 40,000. Raw material is introduced at the beginning of the

process. Wages and overhead accrue evenly throughout the process.

A company has the following capital structure:

10,000 Equity shares of Rs. 10 each Rs. 1,00,000

2,000 10% Pref. shares of Rs. 100 each Rs. 2,00,000

2,000 10% Debentures of Rs. 100 each Rs. 2,00,000

Calculate the EPS for each of the following levels of EBIT: Level under (i) Rs.

1,00,000; (ii) Rs. 60,000 and (iii) Rs. 1,40,000. The company is in 30% tax bracket. Calculate the financial leverage taking EBIT level under (i) base.

A ltd. Intends issue new equity shares. It’s present equity shares are being sold in the market at Rs. 125 a share. The company’s part record regarding payment of dividends is as follows:

1994: 10.70%; 1995: 11.45%; 1996:12.25%;1997:13.11%; 1998:14.03%. The floatation costs are estimated at 3% of the current selling price of the shares. You are required to calculate:

Growth rate in dividends. (refer compound factor table 14.03/10.70=1.3112)
Cost of funds raised by issue of equity shares assuming that the growth rate as calculated under (a) above will continue for ever.
Cost of new equity shares.

S Ltd., is considering the purchase of a new machine. Two alternative machine (A and B) have been suggested. Each having an initial cost of Rs.4,00,000 and requiring Rs.20,000 as additional working capital at the end of 1^st year. Cash inflows after taxation are expected to be as follows:

Cash Inflows

Year Machine A Machine B PV of Rs.1/- @10%

at 10% Rs. Rs. Rs.

1 40,000 1,20,000 0.91

2 1,20,000 1,60,000 0.83

3 1,60,000 2,00,000 0.75

4 2,40,000 1,20,000 0.68

5 1,60,000 1,80,000 0.62

The company has target of return on capital of 10% and on this basis, you are required to

compare the profitability of the machines and state which alternative you consider using NPV

method preferable.

Calculate the cost for the following sources of funds

A Limited issued Rs. 1,000, 12% debentures of a discount of 5% redeemable at the end

of 5 years at par Tax rate 50%.

X Limited issued Rs.100, 14% preference shares redeemable at the end of Five years at

5% premium. Floatation cost is Rs.2/- per preference share and the Tax rate is 40%.

An equity share has a current market price of Rs. 25/-. The next expected dividend is

Rs.2/-. per issue and the growth rate of dividend is 8%.

A company’s capital structure consists of 10,000 equity share of Rs.10/- and Rs. 50,000

10% Debentures. The market price of the share is Rs.20/-. EBIT – 45,000 Tax rate – 50%.

SECTION C

Answer any TWO questions: (2×20=40 marks)

Explain various determinants of working capital of a concern.

From the following capital structure of a company, calculate the overall cost of capital, using (a) book value weights and (b) market value weights.

Source Book Value Market Value

Equity share capital Rs. 45,000 Rs. 90,000

(Rs. 10 per share)

Retained earnings Rs. 15,000 –

Preference share capital Rs. 10,000 Rs. 10,000

Debentures Rs. 30,000 Rs. 30,000

The after tax cost of different sources of finance is as follows:

Equity share capital 14%; Retained earnings: 13%; preference share capital; 10%

Debentures:5%.

A company is considering two mutually exclusive projects. Both require an initial investment of Rs. 50,000 each and have a life of five years. The cost of capital of the company is 10% and tax rate is 35%. The depreciation is charged on straight – line method. The estimated profit before depreciation and tax of the two projects are as follows:

Year Project A Project B Present Value

at 10%

1 Rs. 20,000 Rs. 30,000 0.91

2 Rs. 22,000 Rs. 27,000 0.83

3 Rs. 28,000 Rs. 22,000 0.75

4 Rs. 25,000 Rs. 25,000 0.68

5 Rs. 30,000 Rs. 20,000 0.62

Calculate for each project

Pay Back period.
Return on average investment.
Net present value.

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Loyola College B.Com April 2009 Financial Management Question Paper PDF Download

October 20, 2017 by 01 prakash

LOYOLA COLLEGE (AUTONOMOUS), CHENNAI – 600 034

B.Com.,B.B.A. DEGREE EXAMINATION – COMMERCE & BUS.ADMIN.

KP 09

THIRD SEMESTER – April 2009

CO 3201 – FINANCIAL MANAGEMENT

Date & Time: 16/04/2009 / 1:00 – 4:00 Dept. No. Max. : 100 Marks

SECTION – A

Answer all the following questions: (10 x 2 = 20)

Explain the term “operating cycle”.
List out any four sources of short-term loan financing.
Define the term “dividend policy”.
How does the nature of enterprise affects the capital structure of the company?
Explain the meaning of Trading on equity.
Calculate the Raw material holding period in days from the following:

Raw material on 1.1.2007 Rs.300

Raw material on 31.12.2007 Rs.250

Raw material purchased during the year Rs.500

Period covered 365 days

Cee Ltd. has issued Rs.200 preference shares redeemable at a premium of 5% with 12 years maturity. Coupon rate is 10%. Floatation cost is 2%. Calculate the cost of preference shares.
The degree of operating leverage is 2.5 and degree of combined leverage is 4. By what percentage will EBIT increase if sales increase by 5 per cent?
A project requires Rs.30,000 as initial investment and it will generate an annual cash inflow of Rs.6,000 for ten years. Compute the pay-back period.
State true or false:

Pay-back technique takes into consideration cash flows after the pay-back period.
In case of trading firm, the operating cycle is longer than that for a manufacturing firm.

SECTION – B

Answer any five questions: (5×8=40)

Explain the term “security financing”. State the merits of different types of security financing?
What are “Bonus shares”? Explain the advantages of issuing bonus shares.
Write short note on: a) Cost of retained earnings b) optimum capital structure c) working capital management d) Financial leverage

The existing capital structure of Cassel Ltd is as follows:

Equity shares of Rs.100 each Rs.4,00,000

Retained earnings Rs.1,00,000

7% preference shares Rs.2,50,000

5% debentures Rs.2,50,000

The existing rate of return on the company’s capital employed is 12% and tax rate 50%. The company requires a sum of Rs.3,00,000 to finance its expansion program, for which it is considering the following options:

Issue 3,000 equity shares
b) Issue 10% preference shares

It is estimated the Price Earnings Ratio in the above two financing options would be 16 and 14 respectively, which option would you recommend.

Rai Ltd plans a production of 78000 units per annum. Selling price is Rs.100 per unit. Raw material, direct wages and overheads comprise of 40%, 15% and 25% of selling price. Raw material is in stock for 3 months and finished goods for 2 months. Production process takes 1 month. Credit allowed by suppliers is 1 month and credit given to debtors is 2 months.

Raw material is introduced at the beginning of the process. Wages and overheads in WIP may be assumed to be 50%.

Lag in payment of wages is 1.5 months. Calculate the working capital required at cash cost.

Calculate the Degree of operating leverage, degree of financial leverage and the degree of combined leverage from the following data and interpret the results:

Output (in units)	30,000
Fixed costs	Rs.3,50,000
Variable cost per unit	Re.1.00
Interest expenses	Rs.25,000
Selling price per unit	Rs.300

X Ltd is contemplating investment in a project which requires an initial investment of Rs.1,40,000. The cost of capital is 8%. The Cash flow after tax are as under:

Year	Rs.
1	30,000
2	40,000
3	60,000
4	30,000
5	20,000

Calculate the Internal rate of return and suggest whether the project should be accepted or not.

The balance sheet of Apple Ltd is given below:

Liabilities	Rs.	Assets	Rs.
Equity capital Rs.10 each	9,00,000	Fixed assets	22,50,000
10% long term debt	12,00,000	Current assets	7,50,000
Reserves	3,00,000
Current liabilities	6,00,000
	30,00,000		30,00,000

Tax rate is 50%. Determine the likely level of EBIT, if EPS should be a) Re.1 b) Rs.3 c) Rs.0.

SECTION – C

Answer any two questions: (2×20=40)

What is meant by financial management? What are its objectives? Explain its functions.

Philips Ltd is proposing to take up a project which will need an investment of Rs. 4,00,000. The plant and machinery required under the project will have a scrap value of Rs. 20,000 at the end of its useful life of 5 years. The cost of capital is 10%. Depreciation is to be charged according to the straight line method. Tax rate is 50%. The earnings before tax are estimated to be as follows:

Year	Rs.
1	1,00,000
2	1,75,000
3	2,00,000
4	1,50,000
5	90,000

Calculate: a) Average rate of return b) Pay back period c) Net present value d) Profitability index

Quest Ltd. has the following book value capital structures:

Rs.

Equity capital Rs.100 each 200 lakhs

12% preference capital Rs.100 each 20 lakhs

14% debentures Rs.100 each 100 lakhs

Retained earnings 240 lakhs

10% Term loan 160 lakhs

The next expected dividend is Rs. 30 per share. The dividend is expected to grow at 5% per annum. Market price of the share is Rs. 200. Tax rate is 50%. Calculate Weighted Average cost of capital using book value as weights.

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Loyola College B.Com April 2009 Financial Management (2) Question Paper PDF Download

October 20, 2017 by 01 prakash

LOYOLA COLLEGE (AUTONOMOUS), CHENNAI – 600 034

B.Com. DEGREE EXAMINATION – COMMERCE

KP 32

SIXTH SEMESTER – April 2009

CO 6604 – FINANCIAL MANAGEMENT

Date & Time: 18/04/2009 / 9:00 – 12:00 Dept. No. Max. : 100 Marks

SECTION-A(10*2=20 marks)

ANSWER ALL QUESTIONS

Give the meaning of finance function?

What is optimum capital structure?

Explain the concept of cost of capital

What is cost of Retained earnings?

What is operating cycle of business?

If you deposit Rs.1,000 to-day in a bank which pays 10% interest compounded

annually,how much will the deposit grow to after 8 years?

A project costs Rs.1,00,000 and yields an annual cash inflow of Rs.20,000 for 7

years.Calculate pay-back period?

Calculate operating leverage from the following details

Sales – 2,00,000 units @Rs.8 per unit

Variable costs-Rs.2 per unit

Fixed cost-Rs.30,000

Initial outlay-Rs.50,000;Life of asset-5 years;Estimated cash flow Rs.12,500.Calculate

internal rate of return.

Estimated cost of goods sold Rs.600 lakhs;Expected operating cycle in 90

days,desired cash balance Rs.1 lakh. What is expected working capital

requirement?(Assume 360 days in a year)

SECTION-B(5*8=40 marks)

ANSWER ANY FIVE QUESTIONS

A company wishes to determine the optimal capital structure,from the following

selected information supplied to you,determine the optimal capital structure of the

company.

Structure Dept.amt Equity.amt After tax cost of dept. Ke

Rs. % %

4,00,000 1,00,000 9 10
2,50,000 2,50,000 6 11
1,00,000 4,00,000 5 14

A finance company advertises that it may pay a lumpsum of Rs.8000 at the end of 6

years to the investors who deposits anually Rs.1000 for 6 years.What interest rate is

implicit in this offer?

A company’s current earnings areRs.1,25,000 to be distributed among 8000

shares.The market price of each share is Rs.150 and the growth rate of dividend is

estimated at 9%.compute the cost of equity capital.

From the following information ,you are required to find out the extent of operating

leverage in the year 2008

EBIT(2007) Rs.30,000;sales(2007) 1,50,000 units

EBIT(2008) Rs.35,000;sales(2008) 1,80,000 units

Project X initially costs Rs.2,50,000.It generates the following cash flows:

Year cash inflows Present value of

Rs Re.1 @10%

1 90,000 0.909

2 80,000 0.826

3 70,000 0.751

4 60,000 0.683

5 50,000 0.621

Taking cut off rate as 10% Suggest whether the project should be accepted or not.

Explain the meaning of financial management. What are its objectives?

Explain the factors which should be taken into account while making a capital

investment decision.

Describe in brief the various factors which are taken into account in determining the

working capital needs of a firm.

SECTION-C(2×20=40 MARKS)

ANSWER ANY TWO QUESTIONS

Discuss the various factors influencing the capital structure of a corporation

A choice is to be made between two competing projects which require an equal

investment of Rs.50,000 and are expected to generate net cash flows as under:

Year Project I Project II

Rs. Rs.

1 25,000 10,000

2 15,000 12,000

3 10,000 18,000

4 NIL 25,000

5 12,000 8,000

6 6,000 4,000

The cost of capital of the company is 10%. The following are the present value @10%

per annum:

Year PV factors @ 10%p.a.

1 0.909

2 0.826

3 0.751

4 0.683

5 0.621

6 0.564

Which project proposal should be chosen and why?

Evaluate the projects proposals under;

(a) pay-back period and

(b)Discounted cash flow methods.

A co require Rs 20,00,000/- for a new project. It has identified 3 financing options

for the same.

Issue 20,000/ equity shares of Rs. 100/ each.
Issue 10,000/ equity share of Rs. 100/ each and raise a bank loan @ 15% per annum for the balance
Issue 15,000/ equity share of Rs. 100/ each and Rs. 5,00,000/ 14% Debentures.

The company expects to earn a profit of Rs. 5,00,000/ before interest and tax. If the tax rate is 50% which financing option would you recommend..

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Loyola College B.Com Nov 2012 Financial Management Question Paper PDF Download

October 19, 2017 by 01 prakash

LOYOLA COLLEGE (AUTONOMOUS), CHENNAI – 600 034

B.Com., BBA., DEGREE EXAMINATION – CORPORATE SEC. & BUSI. ADMIN.

THIRD SEMESTER – NOVEMBER 2012

CO 3201 – FINANCIAL MANAGEMENT

Date : 09/11/2012 Dept. No. Max. : 100 Marks

Time : 9:00 – 12:00

SECTION – A

Answer all the following questions: (10×2=20)

What is financial management?
Give the meaning of the term “operating cycle”.
If DOL = 1.56, DCL = 1.23, by what percentage will EBIT increase if sales increase by 10 per cent?
Frost Ltd. has issued Rs.1,000 debentures redeemable at a premium of 10% with 10 years maturity. Coupon rate is 12%. Tax rate is 50%. Calculate the cost of debentures.

Calculate the debtors collection period in days from the following:

Debtors on 1.1.2011 Rs.500

Debtors on 31.12.2011 Rs.380

Credit sales during the year Rs.3,700

Period covered 365 days

Interest = Rs.5,000 Tax rate = 40% No of equity share = 12,000. Determine the likely level of EBIT if EPS is Re.1
State any two merits of Net Present Value.
What do you mean by the term “cost of equity”.
What is optimum capital structure?
List the different forms of dividend.

SECTION – B

Answer any five questions: (5×8=40)

Explain the factors considered in determining working capital requirement of a firm.

Describe the factors affecting dividend policy.

Explain the sources of internal financing.

The project X initially costs Rs.25,000. The cost of capital is10%. It generates the following cash flow after tax:

year	Cash inflows Rs.
1	9,000
2	8,000
3	7,000
4	6,000
5	5,000

Calculate a) Payback period b) Discounted payback period

Sales = 70 lakhs, Fixed cost = Rs.5 lakhs, Variable cost = Rs.45 lakhs, 9% debentures =Rs.40 lakhs and Equity = Rs.60lakhs.

Calculate Operating leverage, Financial leverage and Combined leverage.

A company has the following capital structures:

Equity capital Rs.10 each Rs.3,00,000

9% Preference capital Rs.100 each Rs.2,00,000

Retained earnings Rs.1,00,000

10% Debentures (Rs.10 each) Rs.1,00,000

The next expected dividend is Rs. 5 per share. The dividend is expected to grow at 8% per annum. Market price of the equity share is Rs.12 per share. Assume tax rate is 50%. Calculate weighted average cost of capital using book value as weights.

Ganesh Ltd plans a production of 57000 units per annum. The cost of production is Rs.100 per unit, comprising of raw material – Rs.70; direct labour – Rs.20 and overheads Rs.10.

Selling price is Rs.150 per unit. Raw material is in stock for 2 months and finished goods for 3 months. Production process takes 1 month. Credit allowed by supplier is 1.5 months and credit given to debtors is 1 month. WIP may be assumed to be 40% completed. Calculate the working capital required at cash cost.

The following data relates to Reliance Ltd:

Existing capital structure: 50,000 equity shares of Rs. 100 each

The company wants to implement a new project for which Rs.10 lakhs is needed. The following two options are identified:

Equity shares @ Rs.100 each 10 lakhs
Equity shares @ Rs.100 each 5 lakhs

10% preference shares @Rs.100 each Rs. 5 lakhs

Calculate the EBIT at the indifference point. Assume 30% tax.

SECTION – C

Answer any two questions: (2×20=40)

Discuss the functions of financial management in detail.

The existing capital structure of Regal Ltd is as follows:

Equity shares of Rs.100 each Rs.5,00,000

Retained earnings Rs.2,00,000

8% preference shares Rs.2,50,000

6% debentures Rs. 50,000

The existing rate of return on the company’s capital employed is 10% and tax rate 50%. The rate of return is expected to increase by 2% after expansion. The company requires a sum of Rs.5,00,000 to finance its expansion program, for which it is considering the following options:

a) Issue 5,000 equity shares of Rs.100 each
b) Issue 10% preference shares
c) Issue 8% debentures

The estimated Price Earnings Ratio in the above three financing options would be 17, 15 and 14 respectively. Which option would you recommend?

Surya limited is considering a capital investment proposal which cost Rs.2,50,000. It has a life span of 5 years. The cost of capital is 12%. The firm uses straight line method of depreciation. The company’s tax rate is 30%. The estimated Earnings before tax from the proposed investment proposal is as follows:

Year Earnings before tax

Rs.

1 45,000

2 60,000

3 95,000

4 63,000

5 50,000

Compute: a) Average rate of return b) Net present value c) Profitability index

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