LOYOLA COLLEGE (AUTONOMOUS), CHENNAI – 600 034
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M.A. DEGREE EXAMINATION – MEDICAL SOCIOLOGY
SECOND SEMESTER – APRIL 2008
SO 2805 / 2950 – HOSPITAL FINANCIAL MANAGEMENT
Date : 24/04/2008 Dept. No. Max. : 100 Marks
Time : 1:00 – 4:00
SECTION: A
Answer All Questions: 10 x 2 = 20
1) What are the basic financial decisions?
2) What is Capital Expenditure Budget?
3) What do you mean by “Operating Cycle”?
4) Define Leverage
5) State the following statements are True or False
- Retained earnings have no cost to the firm
- The terms “Permanent working capital” and core current assets have synonymous meanings.
- Discounted cash flow technique takes into account the time value of money.
- A finance manger’s concern must be to maintain liquidity rather than profitability
6) 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.
7) The current market price of an equity share of a company is Rs.110 and the current
Dividend per share is Rs.5.50. Assuming that the dividends grow at the rate of 5%,
Calculate the cost of equity capital?
8) Calculate Economic-ordering Quantity: Annual Usage12000 units, Cost of Materials
per unit Rs.40, cost of placing and receiving one order Rs.120, annual Carrying cost Rs.4 per unit.
9) What are motives for holding cash?
10) Write a short note on the concept of dividend.
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.
13) Discuss the importance of capital Budgeting.
14) Using the information given below, compute the Pay-Back Period under (a)
Traditional Payback Method, and (b) Discounted Payback Method and Commenton 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
15) A) Preferred Hospital Ltd issued 30,000, 15% Preference shares of Rs.100 each. The
cost of issue was Rs.30,000. Determine the cost of preference capital if shares
are issued (a) at a premium of 10% and (b) at a discount of 10%.
- A firm issues debentures of Rs.1, 00,000 and realizes Rs.98, 000 after allowing
2% commission to brokers. The debentures carry an interest rate of 10%. The
dentures are due for maturity at the end of the 10th year. You are required to
Calculate the effective cost of debt before tax and after tax.
16) From the following information taken from the books of A Ltd, compute the
Operating cycle days:
Period Covered 365 days
Average period of credit allowed by suppliers 16 days
Rs.
Average debtors outstanding 4800
Raw material consumption 44000
Total production cost 100000
Total Cost of Sales 105000
Sales for the year 160000
Value of average stock maintained 2500
Raw Materials 3200
Work in progress 3500
Finished goods 2600
17 ) Summarized below are the Income and Expenditure forecasts for the months of
March to July 2007.
Month Sales.(Rs.) Purchases.(Rs.) Wages.(Rs.)
March 60,000 36,000 9,000
April 62,000 38,000 8,000
May 64,000 33,000 10,000
June 58,000 39,000 8,500
July 56,000 39,000 9,500
Prepare cash budgets for 3 months starting from 1st May 2007.
- Cash balance on 1st May 2007 Rs.8,000
- Advance tax Rs.8,000 payable in March and June each.
- Credit allowed by suppliers is 2 months and allowed to customer 1 month.
- Lag in payment of wages is one month.
18) JV hospital Ltd. is planning to buy a new machine costing Rs.80,000. Cash flows are
expected to be as follows:
Years: 1 2 3 4 5
Cash Flows (Rs) 8000 24000 32000 48000 32000
The company expects a minimum return of 10 percent. On the basis of Net
Present Value, find the profitability of the machine and state if it is financially
Preferable. P.V of Rs.1 at 10% p.a is given below:
Year: 1 2 3 4 5
P.V factor .909 .826 .751 .683 .621
SECTION – C
Answer any two only. 2 x 20 = 40
19) Limited company is considering investment 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
Annual Income: 100000 100000 80000 80000 40000
Depreciation may be taken as 20% on original cost and taxation at 50% of net income. You are required to evaluate the project according to each of the following methods. 1) Pay Back Method 2) Rate of Return on average investment method. 3) Discounted cash flow method taking cost of capital as 10%.
20) Apex Hospital Ltd has the following capital structure:
Particulars Market Value Book Value Cost %
Equity Capital Rs.80,00,000 Rs.120,00,000 18
Preference Capital Rs.30,00,000 Rs.20,00,000 15
Secured Debt Rs.40,00,000 Rs.40,00,000 14
Cost of individual sources of capital is net of tax. Compute the Weighted Average
Cost of capital Based on Market Value and Boo value.
21) What is Working Capital? Explain various determinants of working capital of a concern.