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ll Semester M.B.A. Degree Examinition, July 2016
(cBcs)
MANAGEMENT
2.5 : Financial Management
Time :3 Hours Max. Marks: 70
SECTION_A
Answerany five of the following questions.Each question carriesfivemarks. (5x5=25)
1. Explain the various types of decisions which are to taken by financial

the emerging business scenario.
2. Discuss any five factors relevant in determining capital structure.

I
3. Why dividend poliry is important for a company ? Explain. ,,1
4. Acompany has Rs. 20,00,000 6% Debentures outstandingtoday, which will

redeemed after 5 years. For redemption the company established a sinking fund
and its investments eam interest @ 1ao/" p,a. what annual payment must the
firm maketo ensure that the needed Rs. 20,00,000 available on the designated
date. I
The capital struclure of Bombay Traders Ltd. as on 31-s-2015 is as foltows
I Rs. in crores
Equitycapital:l00lakheCuitVpharesofRs.l0each 10
RetainedEarnings, I z
I4%debentures t, ,
For the
, ,1,
eTded
l
31-3-2015
vear ftre company has paid a equity dividend al2o%
and the growtfi rate,is s% everfyear. The equity shares are traded at Rs, g0 per
share in the s.toc* exchange. Tax rate applicable to the company is 40"/o. calculate
the current w[ighred average cost of capilal.
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6. The following details of ABC Ltd. for the year ended 31-3-201 5 are {urnished.
Operating leverage o
Finarcial leverage 2
lnterest charges p.a. Rs. 20 lakhs

Corporatetax 4ff/"
Variable cost as a 7o of sales 6ff/"
Prepare the lncomeStatement of the company.
7. A cornpany sells 40,000 units of its pioduct per year @ Rs. 35 per unit. The
variable cost per unit is Rs. 28. The average collection period is 60 days. Bad
debt losses are 3% on sales and the colleetion ctarges arnount to Rs. 1s,000.
The company is considering the proposal to follow stricter collection policy which
would bring down bad debts to 1y" of sales and average collection period to 4s
days. lt would however, reduce lhe sales volume by 1000 units and increase the
collection expenses to Rs. 25,000.
The cumpany requires a rate of return of 20olo would you recommend the adoition
ol the new credit policy ?
t
,ECT,.N-B
Answerany threp of the following questions. Each questions carriesten marks. (3x1{F:a0)
8. What is working capital ? Explain the different types of working capital

policies of the business
v. "Waller's model asserts retentions influence stock price only through their
effect on future dividends"
1
10, XYZ l-td. is considering financing plans.

Financial Plan Eq Debt , Prelercnce
A 1W"
B 504/" 50%
ff/" 50%
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Total funds to be raised Rs.200 crores

Rate of lnterest on debt 12%
Corporate tax rate 35%
Dividend on preference shares */o'
Face value oI equity share Rs. 10 each.
These shares will be issued ata
premium of Bs. 10 per share
Expected E.B.l.T Rs. 80 crore
Determine:
i) E.P.S. undereach plan
ii) lndifference poinb between financial plans A and B and A and C.
11. Capro industries plans an investment of Rs. 75,000 in a new machinery that
would produce inflow of Rs. 25,000 every yearfor 5 years. The representative of
another equipment manufacturer presents an altemative proposal. By investing
Fts. 1,60,000 in his cornpany's equipment Capro industries can obtain a cash
inflow of Rs. 50,O0O every year for flve years. In future, an investment of this
type can be expected toyield a discountedrate of retum ot 1T/o.
You are required to find :
a) which attefnative is more attractive if a discounled rate of 12olo is expected ?

b) The discounted rate of relur.n on investment alternatiyes.
c) Discounted rlte of return on incremental investment.
i
,SECTION-C
{
12. Case study-Compulsory. f tS
I
xYz Ltd. is presentl operating + 60% levet producing 36000 units and proposes
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to increasecaRpcitv:utilization it'tne comingyear53
/rolo ov€rrh€ existing tevet
of production. Thefotlowing OaH nas been supplied.
a) The expehed ratio's of cost to selling price are :
Raw material 4ff/"

Direct wages 2V/"
Overheads ZU/o
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b) Selling price per unit 8s.15.

c) Raw materials will remain in stores for 1 month. Material will remain in process
for Iurther one month.
d) Suppliers grant 3 months credit to the company and debtors are altowed
2 months credit.
e) Finished goods remain in godown for one month.
f) Lag in wages and overhead payment is one month.
Prepare a projected profitability statement and the working capital requirement

at the new level, assuming that a minimum cash balance of Fls, 50,00O has to be
maintained.
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ililtiluilllililrilrillli Pc -922

Answerany five of the following questions.Each question carriesfivemarks. (5x5=25)

1. Explain the various types of decisions which are to taken by financial

2. Discuss any five factors relevant in determining capital structure.

4. Acompany has Rs. 20,00,000 6% Debentures outstandingtoday, which will

lnterest charges p.a. Rs. 20 lakhs

8. What is working capital ? Explain the different types of working capital

10, XYZ l-td. is considering financing plans.

Total funds to be raised Rs.200 crores

a) which attefnative is more attractive if a discounled rate of 12olo is expected ?

Raw material 4ff/"

b) Selling price per unit 8s.15.

Prepare a projected profitability statement and the working capital requirement

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