REG NO:

ST. JOSEPH’S COLLEGE OF COMMERCE (AUTONOMOUS)

END SEMESTER EXAMINATIONS – MAY 2023
B.B.A. (ENTREPRENUERSHIP)– IV SEMESTER

M3 21DC 401: FINANCIAL MANAGEMENT

Duration: 2 ½ Hours Max. Marks: 60
SECTION - A
I) Answer any 8 questions out of 10. Each carries 1 mark. (8x1=8)
1. Explain the disadvantages of Profit maximization
2. Write a note of Marginal Cost of Capital.
3. Mention the three parameters that revolve around the concept of time value of money.
4. Explain the concept capitalization, capital structure and financial structure.
5. State any two remedies of over capitalization.
6. Define ‘Capital Budgeting’.
7. Write a note on Capital Budgeting Process.
8. Explain the forms of dividend.
9. Mention the tools of Inventory Management.
10. Explain the motives of holding cash.
SECTION - B
II) Answer any 4 questions out of 6. Each carries 5 marks. (4x5=20)
11. Distinguish between profit maximization and wealth maximization.
12. The following is an extract from the financial statement of KPN Ltd.,
(Rs. Lakhs)

Operating profit 105

Less: Interest on debentures 33

72

Less: Income tax (50%) 36

Net Profit 36

Equity Share Capital (Shares of Rs. 10 each) 200

Reserves and Surplus 100

15% Non-convertible debentures (of Rs. 100 each) 220

Total 520

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 The market price per equity share id Rs. 12 and per debenture Rs. 93.75
What is the EPS?
What is the percentage cost of capital to the company for the debenture funds and
the equity?

13. An analytical statement of X Ltd., is shown below, it is shown that on the basis of output
level of 800 units.
Sales 9,60,000

Less: Variable Cost 5,60,000

Contribution 4,00,000

Less: Fixed Cost 2,40,000

EBIT 1,60,000

Less: Interest 60,000

EBT 1,00,000

Less: Income Tax @50% 50,000

Net Income 50,000

You are required to calculate the following:

a) Degree of Operating Leverage
b) Degree of Financial Leverage and
c) Degree of Combined Leverage

14. Data on capital project M is given as follows:

Annual Cash Flows Rs. 60,000
Useful Life 4 years
Internal Rate of Return 15%
Profitability Index 1.064
Salvage Value Zero
You are required to calculate for the Project M
a. Cost of the project
b. Payback period
c. Cost of Capital
d. Net Present Value

15. Explain the Dividend Relevance and Irrelevance theories.

16. Explain the factors influencing working capital requirement.

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 SECTION - C
III) Answer any 2 questions out of 4. Each carries 12 marks. (2x12=24)
17. ABC Ltd., has the following book value capital structure:
(Rs. million)
Equity Capital (10 million shares Rs. 10 par) 100
Preference Capital, 11% (1,00,000 shares, Rs. 100 par) 10
Retained Earnings 120
Debentures (13.5% - 5,00,000 debentures, Rs. 100 par) 50
Term Loans, 12% 80
360
The next expected dividend per share is Rs. 1.50. The dividend per share is expected to
grow at the rate of 7%. The market price per share is Rs. 20. Preference stock, redeemable
after 10 years is currently selling for Rs. 75 per share. Debentures, redeemable after 6
years are selling for Rs. 80 per debenture. The tax rate for the company is 50%
Calculate the weighted average cost of capital using:
a. Book value proportions; and
b. Market value proportions

18. Suppose a firm has a capital structure exclusively of ordinary shares, amounting to Rs.
10, 00,000 of Rs. 100 each. The firm now wishes an additional Rs. 10, 00,000 for
expansion. The firm has four alternative financial plans:
a. It can raise the entire capital by issuing equity shares of Rs. 100 each.
b. It can raise 50% by issuing Rs. 100 equity shares and 50% by issuing 5%
Debentures
c. It can raise the entire amount by issuing 6% debentures
d. It can raise 50% by issuing equity shares of Rs. 100 each and 50% as 5% preference
share capital.

Assume that EBIT is Rs. 1, 20,000 and tax rate is 30%. Which financing plan should the
firm select?
19. A firm can make investment in either of the following two projects. The firm
anticipates its cost of capital to be 10%. The pre-tax cash inflows of the projects for five
years are as follows:
Year 0 1 2 3 4 5
Project A (2,00,000) 35,000 80,000 90,000 75,000 20,000
(Rs.)
Project B (2,00,000) 2,18,000 10,000 10,000 4,000 3,000
(Rs.)
Ignore taxation.
An amount of Rs. 35,000 will be spent on account of sales promotion in year 3, in case
of project A.
This has not been taken into account in calculation of pre-tax cash inflows.
You are required to calculate for each project
a. Payback period

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 b. Discounted payback period
c. Net present value
Desirability factor

20. X co. is desirous to purchase a business and has consulted you to advise them on the
requirements of working capital for the first year.
Amount blocked up in stocks:
Finished goods Rs. 5,000
Stores & materials Rs. 8,000
Average credit sales:
Inland credit-6 weeks Rs. 3,12,000
Export sales-1 1/2 months Rs. 78,000
Lag in payments:
Wages-1 1/2 weeks Rs. 2,60,000
Materials-1 1/2 month Rs. 48,000
Rent royalties- 6 month Rs. 10,000
Salaries -1/2 month Rs. 62,400
Miscellaneous expenses- 1 1/2 month Rs. 48,000
Payment in Advances:
Sundry expenses (paid quarterly in advance) Rs. 8,000
Undrawn profits Rs. 11,000
SECTION - D
IV) Case Study – Compulsory question. (1x8=8)
21. Calculate operating leverage and financial leverage under situation A, B and C and Plan
I, II and III respectively, from the following information relating to operation of capitals
structure of XYZ Co. Ltd. Also find out the combinations of operating and financial
leverage, which give the highest value and the least values. How are these calculations
useful to the financial manager?
Installed capacity 1,200 units
Actual production and sales 800 units
Selling price per unit Rs. 15
Variable cost per unit Rs. 10
Fixed cost
Situation A: Rs. 1,000
Situation B: Rs. 2,000
Situation C: Rs. 3,000
Capital structure
Plan I Plan II Plan III

Equity 5,000 7,500 2,500

12% Debt 5,000 2,500 7,500

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