NOBLE GROUP OF INSTITUTIONS

DEPARTMENT OF MANAGEMENT
CF – MBA SEM 2
11/7/2022 PRE-FINAL EXAMINATION Marks:70
Q.1 Explain the following terms: 14
1. YTM 2. IRR 3. NPV 4. MIRR 5. PI 6. Gross working
capital 7. Financial BEP

Q. 2 A Two investment options are available to Mr. Yatin. The first option promises to pay Rs. 75,000 at the end
of 8 years to investors who deposit Rs. 7,000 annually for 8 years. The second scheme promises to pay Rs. 50,000
at the end of five years on an annual deposit of Rs. 7,000 for five years. Mr. Yatin is confused as to which of the
two schemes give him better returns? Please guide him. 07

Q2 B The Corporation ltd.’s earnings and dividends have been growing at the rate of 12% per annum. This
growth rate is expected to continue for 4 years. After that the growth rate would fall to 8% for the next 4 years.
Beyond that the growth rate is expected to be 5% forever. If the last dividend was Rs.1.50 and investor’s required
return on stock is 14% then what should be the intrinsic value of share of Corporation Ltd.
07
OR
Q. 2 B Explain the relationship between price and yield with reference to the bonds 07

Q.3 A Excel Ltd is providing 25% returns to its shareholders. The current market price of its share is Rs. 80 with
1.25 crore shares outstanding. The firm is expected to earn Rs. 4 crore in the year, while its investment
requirement is Rs. 6 crore. The company is distributing dividend at 75% of the earnings. To meet the expansion
budget, company is thinking of skipping the dividend. You are supposed to calculate the value of the firm under
two situations. I) When company continues with its policy of declaring dividend and II) When the company skips
the dividend 07

Q. 3 B Explain the Net Income (NI) and Net Operating Income (NOI) approaches with graph. 07
OR
Q. 3 A The relevant financial information for Zenon Limited for the year ended 2019 is given below:
Profit and Loss account data (Rs. In Millions) 07
Sales 80
Cost of Goods sold 56
Balance sheet data Beginning of 2019 (Rs. In Millions) End of 2019 (Rs. In Millions)
Inventory 9 12
Accounts Receivables 12 16
Accounts Payables 7 10
What is the length of Operating Cycle? What is the Length of Cash Cycle? Assume 365 days to a year

Q. 3 B Following information is available for A Ltd. 07

Q. 4 A Explain the concept of leverage. Also explain the importance of calculating indifference point for a firm
considering various financial alternatives 07
Q. 4 B The following is the Simons’ company ltd as on 31st March current year
Equity share: 10,000 shares (of Rs 100 each) Rs 10,00,000
12% Preference shares (of Rs 100 each) 4,00,000
10% Debentures 6,00,000
20,00,000
The market price of the company’s share is Rs 110 and it is expected that a dividend of Rs 10 per share would be
declared at the end of the current year. The dividend growth rate is 6 per cent. If the company is in the 35 per cent
tax bracket, compute the weighted average cost of capital based on book value weights and market value weights
OR
Q. 4 A Two firms, Akash Ltd. and Prakash Ltd., are planning a project with the debt levels of Rs. 50,00,000 and
Rs.70,00,000 respectively. The cost of debt for Akash ltd and Prakash Ltd. will be 12% and 15% respectively.
The earnings before interest and tax are projected to be Rs. 30,00,000 for both the firms annually. The cost of
equity for Akash and Prakash Ltd is 22% and 24% respectively. Based upon this information, find out the
earnings for both the firms, if the tax rate is 30%. Also calculate the overall cost of capital for both the firms as
per net income approach
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Q. 4 B ABC co. ltd is planning to manufacture a product developed by its R & D department. The new product
will be sold at Rs.500 per unit. The cost of production is estimated as follows:
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(% of Selling Price)
Raw Material 60
Direct Labour 20
Overheads 10
Initially, 120000 units will be sold in a year. The credit sales are 80% of the total sales. Credit to be allowed to
customer will be two months. Other relevant details are given below:
Raw Material Stock Requirement 1 month
Processing Time Half month (Raw material 100%
Direct Labour & Overheads 50%)
Finished Goods Stock 2 months
Credit allowed by suppliers of Raw Material Half month
Time gap in payment of wages and overheads Half month
Cash and bank balance is 10% of Net Working Capital inclusive of cash. Prepare a statement showing the amount
of working capital required by the company. You may make assumptions that may be necessary

Q5 A firm in the business of manufacture of automobile spare parts is considering two mutually exclusive
technologies for manufacture of hydraulic brakes, designated as Option A and Option B. The cost of these
technologies is Rs. 1500 lakh and Rs. 1800 lakh respectively. Depending upon various features of the product
obtainable from these two technologies, the firm has developed a forecast of cash flows for five years; the life of
each project. These cashflows are as below: (Rs. in Lakh)
Year Option A Option B
1 350 675
2 475 575
3 625 725
4 575 350
5 350 400

Option A is a familiar technology and therefore the firm feels that the current cost of capital of 13% is the
appropriate discount rate. Option B is considered riskier than the option A and therefore the firm would like to use
a discount rate 15%. Based on this situation, answer the following questions.
Q.5 A What is Net Present Value (NPV)? Calculate the NPV for both the options. 07
Q. 5 What is internal rate of return (IRR)? Calculate the IRR for both the options. 07
OR
Q. 5 A The present credit terms of a company are 2/15 net 45. Its sales are Rs. 200 million, average collection
period is 30 days, variable cost to sales ratio is 0.8 and cost of capital is 12%. The proportion of sales on which
the customers currently takes discount is 0.5. The firm considers relaxing the discount terms to 3/ 15 net 45. Such
relaxation will increase sales by Rs. 10 million, reduce ACP to 27 days & increase the proportion of discount
sales to 0.6. The tax rate is 40%. Calculate residual income 07
Q. 5 B Manish Corporation currently provides 45 days of credit. Its present sales are Rs. 80 million. The firm’s
cost of capital is 13% and the ratio of variable costs to sales is 0.75. The firm considers extending the credit
period to 6 days. Such an extension is likely to push sales up to Rs. 20 million. The bad debt proportion on
additional sales would be 10%. Tax rate is 35%. Calculate the effect
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