The ICFAIUniversity

ICFAIBusiness School -Jaipur

MBA Sem I
Class of 2025
End Semester Examination

Campus IBS-JAIPUR Semester

Course Financial Management Course Code SLFI501

Date: 28-09-2023 Time: 02:00 PM- 05:00 PM

To be filled by the candidate

ENROLLMENT NO.
B S c25B

CANDIDATE CAN RETAIN THE QUESTION BOOKLET

AFTER THE EXAMINATIONIS OVER
This question booklet comprises of Part A, Band C
Part A:
Part A consistsof 12Short Note application-oriented questions.
Part B:
Part Bconsists of 4 questions including testing your understanding of Conceptual
understanding, Analytical Ability and Situational Analysis.
Part C:
Part C consists of 2 case-lets to test analytical ability, situational analysis, and
application of concepts.
Total duration of the examination is 3 hours.

INSTRUCTIONS TO CANDIDATES
1 Write your enrolment number on the first page of the answer book at the space
provided.
2. All rough work may be done on last page in the answer book.
3. Pencil should not be used for answering.
4. The unused portion of the answer book must be boldly crossed prior to submitting.
5. Attempt all questions
6. Marks are indicatedagainst each question.
 E

Part - A
Short Note Questions on Basic Concepts and application of Concepts
1 Your portfolio has three asset classes. Government T-bills account for 45% of the portfolio, 4

large-company stocks constitute another 40%, and small-company stockS make up the
remaining 15%. If the expected returns are 3.8% for the T-bills, 12.3% for the large
company stocks, and 17.4% for the small-company stocks, what is the expected return of
the portfolio?
4
2. Afriend of yours just invested in an outstanding bond with a 5% annual coupon and a
remaining maturity of 10years. The bond has a par value of*1,000 and the market interest
rate is currently 7%. How much did your friend pay for the bond? Is it a par, premium, or
discount bond?
3. The probability distribution of a less risky expected return is more peaked than that of a 4
riskier return. What shape would the probability distribution be for (a) completely certain
returns and (b) completely uncertain returns?
4. An investor wanted to invest 20,000 in Treasury Bills for a period of 91days. When he 4
approached the Reserve Bank of India for this purpose he came to know that it was not
possible. Identify the reason why the investor could not invest in the Treasury Bill.
4
5. Answer the following:
a. In hire purchase system, ownership of goods passes from the seller to the buyer
immediately. (True, False).
b. Treasury bills are available for a minimum amount of and ir multiples thereof.
c. What does the "S" in "ESG" (sustainable finance) refer to?
d. Block chain is a peer-to-peer distributed ledger techn ology that makes the
records of any digital asset transparent and unchangeable.
6. The Trading orocedure cn Stock Exchange has been renlaced by online Screen based 4
electronic trading system. This is mainly done to eliminate problems like theft, fake forged
transfers, transfer delays and paper work Asso ciated with share certificates or debentures
in physical form. This isa process where securities held by the investor in the physical form
are Cancelled and the investor is given an electronic entry or number so that he/she can
hold it in an electronic balance in an account. This has increased the equity cult among the
people.
a. ldentify the process mentioned above.
b. Which account is the most important requirement for the process identified?
4
7. ABC Manufacturing, a growing industrial equipment company, is faced with a critical
decision regarding acquiring a new production facility. They have the option to either lease
the facility or buy it outright. The finance team at ABC Manufacturing is tasked with
evaluating the financial implications of both options.
Leasing Option: The leasing company offers a 10-year lease agreement with an annual
lease payment of {200,000. The lease includes all maintenance costs and property taxes.
The lease agreement allows ABC Manufacturing to walk away at the end of the lease term
without any further obligations.
Buying Option: The purchase price for the facility is ?1.5 million. ABC Manufacturing will
need to secure a bank loan to finance the purchase with an interest rate of 5% per annum.
Property taxes, insurance, and maintenance costs will be the responsibility of ABC
Manufacturing.
Suggest ABC Manufacturing on whether to lease or buy the production facility?
8 Answer the following in one word: 4
a.long-term
Which type of financial instrument represents ownership in a company and provides a
source of finance?
b. Which term describes the accumulated profits that a company retains for reinvestment
in the business?

2
 c. Which types of investors provide long-term financingto startups and growing businesses
in exchange for equity ownership?
d. What is the process by which a private company becomes public and raises long-term
capital from a wide range of investors?
9 Fillin the blanks with the appropriate terms. 4
a. FPO is to existing shareholders as it increases the total number of
outstanding shares, potentially reducing the ownershippercentage of current shareholders.
b. In FPO, the issuance does not dilute the ownership of existing
as the new shares are offered without affecting the proportion of shareholders,
shareholders.
ownership held by current
10. What do you think the average investor's risk perception is now? In
what types of 4
investments do you think the average investor is investing currently?
11. You are the finance manager of DOWELL INDUSTRIES LTD.
The firm has earned a profit of 4
100 crores. Management wants to retain the profit fully in the business
without paying any
dividend. Advise the management on the negative impact of doing so. (Any two reasons).
12. How long would it take {1,000 to doubleif it was invested in a
bank that paid 6% per year? 4

Part -B
Basic Concepts, Conceptual Understanding,
Analytical Ability, Situational Analysis and application of principles
13. Rajni Auto manufacturers have decided to give a special
shareholders to subscribe to the new issue of shares where they privilege to the existing 6
will be given shares
according to the proportion of shares held by them. The company always gives
treatment to loyal stakeholders. Last year the company was dealing through the special
market where both the buying and selling of securities were taking place. The ownercapital
of the
company is a man of ethical h12siness. He recentiy wrcte an article ahout the watchdog of
stock market. The article gained a lot of popularity and now is part of the curriculum of MBA
students.
a. Which method of floatation was used by Rajni Auto
manufacturers?
b. Which type of market was this company dealing in?
c. Which watchdog of the capital market has been referred to in the above case?
d. Name two regulatory functions of this above referred organization?
14. Swan's Sportswear is considering bringing out a line of designer jeans.
Currently, it is 6
negotiating with two different well-known designers. Because of the highly competitive
nature of the industry, the two lines of jeans have been given code names. After market
research, the firm has established the expectations shown in the following table about the
annual rates of return
Market Acceptance Annual Rate of Return
Probability Line) Line K
Very Poor 0.05 0.0075 0.010
Poor 0.15 0.0125 0.025
Average 0.60 0.0850 0.080
Good 0.15 0.1475 0.135
Excellent 0.05 0.1625 0.150
a. Calculate the expected value of return for line j and line k.
b. Evaluate the relative riskiness for each jean line's rate of return.
15.
6
Domestic Equlty Domestic
Shares
Company Custodian

Depository Agreemment
Custodlan Agreement
Overseas Overseas
Depository Investor
3
 Write a short note on the above concept.

16. You have applied for a job with a local bank. As part of itsevaluation process, youmust take 6
an examination on time value of money analysis covering the follo wing questions:
a. Draw time lines for (1) a 100 lump sum cash flow at the end of Year 2; (2) an ordinary
annuity of 100per year for 3 years; and (3) an uneven cash flow stream of -*50, 100,
{75, and 50 at the end of Years 0 through 3.
b. What's the future value of R100 after 3 years if it earns 4%, annual compounding?
c. What's the present value of ?100 to be received in3 years if the interest rate is 4%, annual
compounding?
d. What annual interest rate would cause 100 to grow to 119.10 in 3 years?
Part -C
Case Analysis / Case-lets /l Applications of concepts
17. Dillon Labs has asked its financial manager to measure the cost of each specific type of 14
capital as wellas the weighted average cost of capital. The weighted average cost is to be
measured by using the following weights: 40l% long-term debt, 10% preferred stock, and
50% common stock equity (retained earnings, new common stock, or both). The firm's tax
rate is 40%.
a.Debt: The firm can sell for 980 a 10-year, 1,000-par-value bond paying annual interest
at a 10% coupon rate. A flotation cost of 3% of the par value is required in addition to the
discount of 20 per bond.
b. Preferred stock: 8% (annual dividend) preferred stock havinga par value of ?100 can
be sold for 65. An additional fee of E2 per share must be paid to the underwriters.
c. Common stock: The firm's common stock is currently selling for 750 per share. The
dividend expected to be paid at the end of the coming year (2023) is {4. Its dividend
payments, which have been approximately 60% of earnings per share in each of the past 5
years,were as shown in the following table.
Year 2022 2021 2020 2019 2018
Dividend 3.75 3.5 3.3 3.15 2.85

It is expected that in order to sell, new common stock must be underpriced {5 per share,
and the firm must also pay 3 per share in flotation costs. Dividend payments are expected
to continue at 609% of earnings. Assume that k= ks.)
On the basis of the following information calculate the following:
() Calculate the after-tax cost of debt.
(ii) Calculate the cost of preferred stock.
(iii) Calculate the cost of common stock.
(iv) Calculate the WACC for Dillon Labs.
18. Mark Goldsmith's broker has shown him two bonds. Each has a maturity of 5years, a par 14
value of 1,000, and a yield to maturity of 129%. Bond A has a coupon interest rate of 6%
paid annually. Bond Bhas a coupon interest rate of 14% paid annually.
a.Calculate the selling price for each of the bonds.
b. Mark has 720,000 to invest. Judging on the basis of the price of the bonds, how many of
either one could Mark purchase if he were to choose it over the other? (Mark cannot really
purchase a fraction of a bond, but for purposes of this question, pretend that he can.)

END OF QUESTION PAPER