Date:30/12/2021 Enrolment No.

:___________________

RK UNIVERSITY
BBA/SEM-IV/REMEDIAL/DEC-2021

BBC422: PRINCIPLES OF FINANCE

Time: 01:30 PM TO 04:30 PM Total Marks: 100

Instructions:
1. Attempt all questions.
2. Make suitable assumptions wherever necessary.
3. Figures to the right indicate full marks.
4. Programmable calculator is not permissible.

SECTION – I

Q.1 (a) “Financial is the key to other functions of any business.” Justify 08
with major decision areas of financial management.
(b) What are the objectives of Financial Management and Financial 08
Decision Making in a firm? Explain with traditional and
modern thought.

Q.2 (a) An investor invests 500, 1000, 1500, 2000 and 2500 at the end of 08
each year. Calculate the compound value at the end of 5 years
compounded annually when interest is charged at 5% per
annum.
(b) Evaluate ‘Preference Shares’ as a source of long term finance in 08
comparison with Equity Shares.
OR
Q.2 (a) A cooperative bank of Ahmedabad has launched a new 08
Investment scheme for the investors of Gujarat State on 1st
May 2021. Investors need to invest 25000, 30000, 35000, 40000
and 45000 rupees at the end of each year. They will be entitled
to receive the interest of 14% per annum, compounded annually.
Calculate the compound value at the end of 5 years compounded
Annually.
(b) From the following particulars of PQR company calculate 08
operating and financial leverage. The company’s current sales
revenue is ₹ 15, 00,000 and sales are expected increase by 25%.
₹ 9, 00,000 incurred on variable expenses for generating ₹ 15
lakhs sales revenue. The fixed cost is ₹ 2, 50,000. The company
has ₹ 0 lakhs equity share capital and ₹ 0 lakhs, 10% debt
capital. ₹ 10 per equity share and 50 % tax rate.

Page 1 of 3
Q.3 (a) Mr. Rohan borrows from bank for 5 year worth ₹ 10, 00,000 to 09
buy a new car named Honda city. If Mr. Rohan wants to pay an
equal annual instalment at the end of every year, and if the rate
of interest is 10%, calculate the amount of instalment every
year. Also prepare loan amortization schedule.
(b) VST corporation has sales of ₹ 40 lakhs, variable cost 70% of the 09
sales and fixed cost is ₹ 8, 00,000. The firm has raised ₹ 20
lakhs funds b issue of debenture at the rate of 10%. Compute
operating, financial and combined leverage.
OR
Q.3 (a) What is the present value of an income stream which provides ₹ 09
1000 at the end of the year one, ₹ 2500 at the end of year two
and ₹ 5000 during each of the year 3 through 10, if the discount
rate is 12%.
(b) Give the meaning of Capital Structure. Also Discuss 09
characteristics of an Optimum Capital Structure.

SECTION – II

Q.4 (a) “Working capital requirement depends on the time period for 08
which it actually requires in a business.” Do you agree? Justify.
(b) Discuss various factors or determinants for Dividend Policy 08
Decisions.

Q.5 (a) What is investment decision? Briefly discuss about capital 08

budgeting techniques available to business for investment
decisions.
(b) From the below information calculate the value of shares by 08
using Gordon Dividend Model if retention ratio is 60% and if
retention ratio is 10%
EPS = ₹10
Cost of capital = 10%
Rate of earing 15%
OR
Q.5 (a) Write a Short Note on - Cash Conversion Cycle & Operating 08
Cycle.
(b) Following two projects require an investment of Rs. 2,00,000 08
each. The income after taxes for both projects has been
projected as follows;

Page 2 of 3
 Year Project A Project B
1 80,000 20,000
2 80,000 40,000
3 40,000 40,000
4 20,000 40,000
5 NIL 60,000
6 NIL 60,000
By using payback period and average rate of return, determine,
which project is preferable.

Q.6 (a) Explain Major Components and Types of Working Capital in 09

detail.
(b) The following information is available in respect of a firm: 09
EPS ₹ 40
Capitalization rate 10%
Assumed rate of return on investment 10% and 13%
You are required to show the effect of dividend payout ratio is
(a) 0% (b) 25% (c) 50% (d) 75% (e) 100%
OR
Q.6 (a) George field ltd. has to make a choice between three investment 09
projects i.e. A, B and C. Immediate cash outlays for each is Rs.
1,10,000. Each project will continue for 5 years and the discount
rate is 12%. Which proposal is to be selected by using Net
present value and Profitability Index? Why?

Projects
Year
A B C
1 10,000 20,000 30,000
2 20,000 30,000 40,000
3 30,000 50,000 35,000
4 40,000 30,000 25,000
5 50,000 20,000 20,000
(b) Shah brothers requires help in calculating their working capital 09
requirements;
a. If the value of raw material is 1,60,000; Inventory (work-in-
progress) is of 1,25,000; Inventory (Finished goods) is of
3,40,000 and required cash is 12,500 then calculate the value of
Gross working capital.
b. If Working Capital is 6,78,000 and 14% safety working
capital is to be maintained then calculate amount of safety
working capital.

*************

Page 3 of 3