MANGALORE INSTITUTE OF MANAGEMENT & SCIENCE

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VI SEMESTER B.COM PREPARATORY EXAMINATION – JUNE 2024

SUBJECT:ADVANCED FINANCIAL MANAGEMENT
Time: 2 Hour 30 Min Reg. No. Max. Marks: 60
Instructions: Answer all the sections

SECTION - A
Answer any SIX questions. Each question carries TWO marks. (6X2=12)
1.
a. What is marginal cost?
b. What is co - efficient of variation method?
c. Give the meaning of risk adjusted cut off rate?
d. What is Bond dividend?
e. Mention the types of dividend policy.
f. State the formula for price earning ratio.
g. What is conglomerate merger?
h. Mention the fundamental ethics is business.

SECTION - B
Answer any THREE questions. Each question carries FOUR marks. (3X4=12)
2. Explain any four types of cost.
3. Explain the net income approach.
4. The dividend payout ratio of the following three companies is 50%. from the following other
details calculate the value of an equity share of each of these companies by walter’s formula.

Raja Ltd Rani Ltd Rocket Ltd

E ₹ 24 ₹ 24 ₹ 24

r 5% 10% 10%

Ke 10% 15% 10%

5. Briefly explain the stages involved in mergers and acquisition.

6. There are two projects ‘X’ and ‘Y’ each involves an investment of ₹ 40,000. The expected cash
inflows and the certainty co - efficient are as under:
Project X Project Y

Year Cash inflow Equivalent value Cash inflow Equivalent value

1 25,000 0.8 20,000 0.9

2 20,000 0.7 30,000 0.8

 3 20,000 0.9 20,000 0.7

Risk free cutoff rate is 10%. suggest which of the two projects should be preferred.

SECTION - C
Answer any THREE question. Question carries TWELVE marks. (3X12=36)

7. Explain the factor influencing the size of capital structure.

8. HP company has a proposal requiring an investment of ₹ 2,20,000. the investment proposal is
expected to have two years economic life. In the I year, there is 30% probability of cash inflow of ₹
1,00,000; 40% probability of ₹ 1,20,000 and 30% probability of ₹ 1,60,000.
In the II year, the cash inflows and probabilities depend on cash inflow that occurs in I year. The
expected cash inflows in the II year is as follows:
Events 1,00,000 1,20,000 1,60,000

Cash inflow Prob. Cash inflow Prob. Cash inflow Prob.

1 50,000 0.2 1,40,000 0.3 1,80,000 0.1

2 1,10,000 0.6 1,60,000 0.4 2,00,000 0.8

3 1,60,000 0.2 2,00,000 0.3 2,00,000 0.1

The cost of capital is 10% advice the company about the acceptability of the project by plotting the
information on the decision tree.

9. X limited wants to take over Y limited and the financial details are as follows:
Particulars X limited Y limited

Fixed Assets 2,44,000 70,000

Current Assets 1,02,000 52,000

Total Assets 3,46,000 1,22,000

Preference share capital 40,000 -

Equity share capital of ₹ 10 each 2,00,000 1,00,000

Share premium - 4,000

P/L account 76,000 8,000

8% Debentures 30,000 10,000

Total equity and liabilities 3,46,000 1,22,000

Profit after tax and preference Dividend 48,000 30,000

Market price per share(₹) 48 54

What should be share exchange ratio to be offered to the shareholders of Y limited based on
A)Net asset value B)EPS and C)Market price per share
Which method would prefer from X limited point of view?

10. Given the following information about the Zed ltd.,show the effect of the dividend policy on
the market price of its shares using the walter’s Model.
A) Equity capitalization rate 12%
B) Earning per share ₹ 8
C) Assumed return on investments (r) are as follows:- i. 15% ii. 10% iii. 12%. the company is
considering a payout of 25%, 50% & 75%.

11. What are the reasons for mergers and acquisitions.

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