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Time-Bound Home Exam-2020: Purbanchal University

This document provides instructions for Purbanchal University's time-bound home exam for the MBA program's second semester Financial Management and Analysis course. It outlines instructions for submitting answer sheets digitally within the given timeframe and without external assistance, as well as dividing the exam into three sections: a compulsory case study question worth 15 marks (Section A), two long answer questions worth 10 marks each (Section B), and five short answer questions worth 4 marks each plus a compulsory short question worth 5 marks (Section C).

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109 views2 pages

Time-Bound Home Exam-2020: Purbanchal University

This document provides instructions for Purbanchal University's time-bound home exam for the MBA program's second semester Financial Management and Analysis course. It outlines instructions for submitting answer sheets digitally within the given timeframe and without external assistance, as well as dividing the exam into three sections: a compulsory case study question worth 15 marks (Section A), two long answer questions worth 10 marks each (Section B), and five short answer questions worth 4 marks each plus a compulsory short question worth 5 marks (Section C).

Uploaded by

Enysa Dl
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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PURBANCHAL UNIVERSITY

Time-bound Home Exam-2020(Spring)


Master of Business Administration/Second Semester/Final
Time: 03:00 hrs. (+2 hours for submission) Full Marks: 60/Pass Marks: 24
CO-523: Financial Management and Analysis (New Course)
Instructions:
Dear Students!
• This model of examination is for you as the end of your current semester. This examination allows you
to write answer from your own place of residence. Follow the following instructions without fail.
• Do not write your name in the answer-sheet(s)
• All the answer-sheets should be sent to college through your approved email in which you have
received your question paper.
• Do not write questions in the answer-sheet but mention clearly the question number.
• All the scan/photos of answer-sheets should be clearly visible. Any blur scan/photo will not be
considered for evaluation. Responsibility lies with the students to make sure that scan/photos of the
answer-sheet are of readable quality.
• Leave 1 inch margin on each side of the answer-sheet.
• Clearly mention your Roll no, subject, program, semester, page number at the right-top of each page as
instructed by the Office of the Examination Management.
• Make sure that you send your answer-sheets within the given time. Any email received after the given
time will not be acceptable.
• You are strictly advised to write with your own handwriting and that you are not using any unfair
means to answer the questions.
• Do not consult during the examination period to any other person in answering the questions.
• Do not post any pictures of taking examination or your answer-sheets in any social-media. Found that
may be taken action from University.
Group A: (Case Study)
Compulsory Question. 1×15=15
1. Suppose that, after completing your MBA, with finance specialization from a prestigious University.
you are hired by Max Pro Company in the capacity of finance manager. You discover that the company
is contemplating the replacement of one of its machines that often gave trouble in regular operation,
with a newer and more efficient one. The old machine has a book value of Rs. 500.000 and a remaining
useful life of five years. The firm does not expect to realize any return from scrapping the old machine
in five years, but it can sell the machine now to another firm in the industry for Rs. 250,000. The old
machine is being depreciated toward to zero salvage value, or by Rs. 100,000 per year. The straight-
line method has been used for depreciation.
The new machine has purchase price of Rs.12.00,000, an estimated useful life of five years, and an
estimated salvage value of 2,00,000. It is expected to economize on electric power usage, labor, and
repair costs and to reduce the number of defective items. In total, an annual saving of Rs.250,000 will
be realized if the new machine is installed. The company's marginal tax rate is 40 percent and it has a
10 percent cost of capital. Company uses SLM depreciation for new machines as well.
(a) Compute the initial cash outlay (NCO) required for the new machine?
(b) Compute the operating cash flows in years 1 through 5?
(c) What is the cash flow from the salvage value in year 5?
(d) What is final year CFAT of the replacement decision?
(e) Do you suggest the company to purchase the new machine or not? Justify your recommendation by
finding NPV and IRR of the proposed replacement decision.
Group B: (Long Answer Type Questions)
Answer TWO questions. 2×10=20
2. The rates of return on two common stocks, A and B along with their joint probabilities are given below.
States of economy Probability Rates of return (%)
A B
Declining growth 0.10 -10 -8
Average growth 0.20 7 4
Above average growth 0.30 12 9
Recovery 0.30 15 20
High grow 0.10 25 17
Calculate the expected return and risk of a portfolio containing securities A and B with 40 percent of
wealth invested in Security A and rest in Security B.

Contd. ...
(2)

3. Hypromax Corporation has the following capital structure which it consider to be optimal.
Debt 30%
Preferred stock 20%
Common stock 50%
Total capital 100%
The company's tax rate is 40 percent, and investor expected earnings and dividends to grow at a
constant rate of 6 percent in the future. The company paid a dividend of Rs. 10 per share last year and
its stock currently sells at a price of Rs.120 per share. These terms would apply to new security
offerings.
Common: New common stock would have a floatation cost of 10 percent.
Preferred stock: New preferred stock could be sold to public at a price of Rs.100 per share, with a
dividend of Rs.11. Floatation costs of Rs.4.50 per share would be incurred.
Debt: Rs. 1,000 par value, 15 percent coupon interest rate, can be sold for Rs.950 in the market. The
bonds matures in 8 years.
(a) Find the component cost of debt, preferred stock, retained
earnings, and new common stock.
(b) Calculate the weighted average cost of capital assuming that
common stock financing requirements are all met by retained earnings.
4. Discuss the concept of Financial Management. Explain why wealth maximization is considered to be
superior than profit maximization goal.
Group C: (Short Answer Type Questions)
Answer FIVE questions. Q. (10) is Compulsory. 4×5+(5×1)=25
5. What are the motives of holding cash by a corporation? Also shed light on different models of cash
management.
6. As a financial manager find the interest rates, or rates of return, on each of the following:
(a) Your borrow Rs 70,000 and promise to pay back Rs 80,000 at the end of 1 year.
(b) You borrow Rs 9,000 and promise to make payments of Rs 2,685 per year for 5 years.
(c) You lend Rs 70,000 and receive a promise to be paid Rs 79,259 at the end of 1 year.
7. scribe the basic features of an ideal capital structure for a corporation?
8. John and Inc. has shareholders' equity, December 30, 2013 as:
Common stock (Rs.100 par, Rs.30,000,000
300,000 shares)
Additional paid- in capital Rs.15,000,000
Retained earnings Rs.55,000,000
Shareholders’ equity Rs.100,000,000
On December 31, 2013, Good Will Inc. split the stock 2-for-I and then declared a 10 percent stock
dividend. The price of the stock on December 30, 2013 was Rs. 500. Reformulate the stockholders'
capitalization accounts of the firm after the change.
Or,
Describe the factors affecting dividend policy of a firm.
9. Suppose Sanima Bank has issued a 10-year corporate bond that has a par value of Rs. 1,000 and a 9
percent annual coupon rate. that your required rate of return is 10 percent and that you plan to hold
on to this bond for10 years.
(a) How much are you willing to pay for this bond today?
(b) If the bond is selling at Rs. 950 in the market, what should you do? Should you buy the bond
today?
(c) Suppose you bought the bond today at Rs. 950 exactly how much will be the Yield to Maturity (YTM)
of the bond?
10 Answer the following questions in a single sentence.
(a) In how many years will a certain sum of money double itself at 10 percent annual compounding
rate?
(b) Mention the parties among which agency relationship exist in a
corporation.
(c) What does beta coefficient of 1.2 indicate?
(d) In case of common stock what do you mean by over priced and
underpriced.
(e) Why quick ratio can better assess the solvency of a firm than
the current ratio?

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