22 Mba Nr R5 Financial Management

NR/R5 Code No: NR/R5-22/MBA M.B.A. II-semester Examinations, July-2007. FINANCIAL MANAGEMENT Time: 3 hours Max. Marks: 60 Answer any FIVE questions All questions carry equal marks --1. Discuss briefly the scope and functions of Financial Management. 2.

An equipment ‘A’ has a cost of Rs.75,000 and net cash flow Rs.20,000 per year for six years. A substitute equipment ‘B’ would cost Rs.50,000 and generate net cash flow of Rs.14,000 per year for six years. The required rate of return of both equipments is 11%. Calculate the IRR and NPV for each equipment. Which equipment should be accepted and why?

3.

A firms after tax cost of capital of the specific sources is as follows: Cost of debt 8% Cost of preference share s 14% Cost of equity funds 17% The following is the capital structure Rs. Debt 3,00.000 Preference capital 2,00,000 Equity capital 5,00,000 __ 10,00,000 Calculate the weighted average cost of capital, Ko, using book value weights.

4.

What is an EBIT-EPS analysis? Illustrate your answer.

5.

X Ltd. had 50,000 equity shares of Rs.10 each outstanding on January1; The shares are currently being quoted at Par is the market. The company now intends to pay a dividend of Rs.2 per share for the current calendar year. It belongs to a risk-class whose appropriate capitalization rate is 15%. Using M.M model and assuming no taxes, ascertain the price of the company’s share as it is likely to prevail at the end of the year (i) when dividend is declared and (ii) when no dividend is declared. Also find out the number of new equity shares that the company must issue to meet its investment needs of Rs.2 lakhs, assuming a net income of Rs.1,10,000 and also assuming that the dividend is paid. Contd…2

Code No. NR/R5-22/MBA

-2-

6.

Asian paints Ltd. sells its products on a gross profit of 20% on sales. The following information is extracted from its annual accounts for the year ending 31st December 2003. RS. Sales at 3 months credit 40,00,000 Raw materials 12,00,000 Wages paid (15 days in arrears) 9,60,000 Manufacturing expenses (one month in arrears) 12,00,000 Administrative expenses (one month in arrears) 4,80,000 Sales promotion expenses payable half-year in advance 2,00,000 Income tax (Payable quarterly last installment falls due in December 2003) 4,00,000 The company enjoys one months credit from supplier of raw materials and maintains 2 months stock of raw materials and 1½ months stock of finished goods. Cash balance is maintained at Rs.1,00,000 as a precautionary balance. Assuming 10% margin, find out net working capital requirement of the company.

7.

As a Chief Financial Executive, how would you take care of an effective cash management?

8.

What benefits and costs are associated with the extension of credit? How should they be combined to obtain an appropriate credit policy?

^^^