LOYOLA COLLEGE (AUTONOMOUS), CHENNAI – 600 034
M.A. DEGREE EXAMINATION – SOCIOLOGY
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SECOND SEMESTER – APRIL 2006
SO 2805 – HOSPITAL FINANCIAL MANAGEMENT
(Also equivalent to SO 2950)
Date & Time : 24-04-2006/9.00-12.00 Dept. No. Max. : 100 Marks
PART – A
ANSWER ALL QUESTIONS: 10 ´ 2 = 20 marks
- What is financial management?
- What is trading on equity?
- What do you mean by leverage in financial analysis?
- What is capital structure?
- What is specific cost?
- What is capital budgeting?
- What is property dividend?
- The current market price of an equity share of a company is Rs. 100. The current dividend per share is Rs. 5. In case the dividends are expected to grow at the rate of 8% calculate the cost of equity capital.
- What is time preference for money?
- Define working capital.
PART – B 5 ´ 8 = 40 marks
ANSWER ANY FIVE QUESTIONS:
- Explain the objectives of Financial Management.
- Abu hospital is capitalized with Rs. 10 lacs divided into 10,000 shares of Rs. 100 each. The management desires to raise another Rs. 10 lacs to finance a major expansion programme. There are four possible financing plans: (i) all equity shares, (ii) Rs. 5 lacs in equity shares and Rs. 5 lacs in debentures carrying 5% interest, (iii) all debentures carrying 6% interest and (iv) Rs. 5 lacs in equity shares and Rs. 5 lacs in preference shares carrying 5% dividend. The existing earnings before interest and tax amount to Rs. 1,20,000 per annum.
You are required to calculate earnings per equity share under each of the above four financial plans.
- Explain the types of dividend policy and forms of dividend.
- X borrows Rs. 1 lakh at 8% interest compounded annually. Equal annual payments are to be made for 6 years. However at the time of the 4th payment, x decides to settle the loan. How much should he pay? (PVIFA = 6 years 8% = 4.623)
- From the following information, you are required to forecast working capital requirements of National Hospital Ltd :
Rs.
Projected annual sales 1,30,000
Percentage of profit on sales 25%
Average credit period allowed to debtors 8 weeks
Average credit period allowed by creditors 4 weeks
Average stock 8 weeks
Add 10% to computed figures to allow for contingencies.
- Calculate the average rate of return for projects A and B from the following:
| Particulars | PROJECT A | PROJECT B |
| Investments | Rs. 20,000 | Rs. 30,000 |
| Expected life (no salvage value) | 4 years | 5 years |
Projected Net Income (after interest, depreciation, and taxes)
| Years | Project A (Rs) | Project B (Rs) |
| 1 | 2,000 | 3,000 |
| 2 | 1,500 | 3,000 |
| 3 | 1,500 | 2,000 |
| 4 | 1,000 | 1,000 |
| 5 | – | 1,000 |
| Total | 6,000 | 10,000 |
- (a) Explain the list of leverages used in financial analysis.
(b) Out put 65,000 units, Fixed cost Rs. 5,000 variable cost .20 p per unit, interest 5,000 selling price per unit .50 p per unit. Calculate, leverages.
PART – C 2X20 = 40marks
ANSWER ANY TWO QUESTIONS:
- There are two projects X & Y. X requires an investment of Rs. 26,000
while Y requires an investment of Rs. 38,000. The cost of capital is 12%.
On the basis of the following cash inflows and present value of Re 1 at
12%, you are required to state which project should be accepted, by using
Net Present Value method profitability index method.
| Year | Cash Inflows
Project X |
Cash Inflows
Project Y |
Present value of Re. 1 at 12% |
| 1 | Rs. 9,000 | Rs. 8,000 | .893 |
| 2 | 7,000 | 10,000 | .797 |
| 3 | 6,000 | 12,000 | .712 |
| 4 | 5,000 | 14,000 | .636 |
| 5 | 4,000 | 8,000 | .567 |
| 6 | 4,000 | 2,000 | .507 |
| 7 | 3,000 | 16,000 | .452 |
| 8 | 3,000 | – | .404 |
| 9 | 3,000 | – | .361 |
| 10 | 3,000 | – | .322 |
- The board of directors of Nanak hospital Ltd. requests you to prepare
a statement showing the Working Capital Requirements for a level of activity of
1,56,000 units of production.
The following information is available for your calculations:
Per Unit (Rs.)
Raw materials 90
Direct Labour 40
Overheads 75
___
205
Profit 60
___
Selling price per unit 265
___
- Raw materials are in stock, on average one month.
- Materials are in process, on average 2 weeks
- Finished goods are in stock, on average one month.
- Credit allowed by suppliers, one month
- Time lag in payment from debtors, 2 months
- Lag in payment of wages, 1.5 weeks
20% of the output is sold against cash. Cash in hand and at bank is expected to be Rs. 60,000. It is to be assumed that production is carried on evenly throughout the year. Wages and overheads accrue similarly and a time period of 4 weeks is equivalent to a month.
- Explain the capital structure decision, and factors affecting capital structure.
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. 10 shares) | 45,000 | 90,000 |
| Retained earnings | 15,000 | – |
| Preference share capital | 10,000 | 10,000 |
| Debentures | 30,000 | 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%.
- Explain the capital structure decision, and factors affecting capital structure.