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MAY 2013 P/ID 6012/MBM

Time : Three hours Maximum : 80 marks

PART A (8 5 = 40 marks)

Answer any EIGHT questions.

1. In what respect is the objective of wealth

maximisation superior to the objectives of profit

maximisation?

2. What are the uses of comparative balance sheet?

3. What are the advantages of cash management?

4. What are the objectives of CVP analysis?

5. Define working capital. Distinguish between

permanent and temporary working capital.

6. Discuss the types of assistance offering for

industrial sectors by the commercial banks.

7. Outline the financial management techniques of

capital investment in fixed assets.

8. What is a public deposit? Explain briefly.

9. Explain the concept of cost of capital as a device

for establishing a cut off point of capitalinvestment proposals.

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10. Describe briefly the techniques of inventory

control.

11. What is financial distress? How does it affect the

firm?

12. Write short notes on zero base budgeting.

PART B (4 10 = 40 marks)

Answer any FOUR questions.

13. Financial management is something more than

an art of accounting and book keeping. Explain.

14. What are the different sources of long term

financing? State the merits and demerits of each

sources of long term financing.

15. Shyam Ltd., has assets of Rs. 1,60,000 which havebeen financed with Rs. 52,000 of debts and

Rs. 90,000 of equity and a general reserve of

Rs. 18,000. The firms total profit after interest

and taxes for the year ended 31st March, 2000

were Rs. 13,500. It pays 8% interest on borrowed

funds and is in the 50% tax bracket. It has 900

equity shares of Rs. 100 each selling at a market

price of Rs. 120 per share. What is the weighted

average cost of capital?

16. The values for two firms X and Y in accordance

with the traditional theory are given below

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X Y

Rs. Rs.

Expected operating income 50,000 50,000

Total cost of debt 0 10,000

50,000 40,000

Cost of equity 0.10 0.11

Market value of shares 5,00,000 3,60,000

Market value of debt 0 2,00,000

5,00,000 5,60,000

Average cost of capital 0.10 0.09

Debt equity ratio 0 0.556

Compute the values for firms X and Y as per MM

approach. Assume that

(a) Corporate income taxes do not exist.

(b) The equilibrium value of cost of equity is

12.5%.

17. Harshith Ltd. sells goods on a gross profit of 25%.

Depreciation is taken into account as a part of cost

of production. The following are the annual figures

given to you

Rs.

Sales (two months credit) 18,00,000Material consumed (one months credit) 4,50,000

Wages paid (one month lag in payment) 3,60,000

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Rs.

Cash manufacturing expenses

(one month lag in payment) 4,80,000

Administrative expenses

(one month lag in payment) 1,20,000

Selling expenses (paid quarterly in advance) 60,000

Income tax payable in 4 instalments of

which one lies in the next year 1,50,000

The company keeps on months stock each of raw

materials and finished goods. It also keeps

Rs. 1,00,000 in cash. You are required to estimate

the working capital requirements of the company

assuming 15% safety margin.

18. Reji company is contemplating conversion of 500,

14% convertible bonds of Rs. 1,000 each. Market

price of the bond is Rs. 1,080. Bond debenture

provides that one bond will be exchanged for

10 shares. Price earning ratio before redemption is

20 : 1 and anticipated price earning ratio after

redemption is 25 : 1. Number of shares

outstanding prior to redemption are 10,000. EBIT

amounts to Rs. 2,00,000. The company is in the

35% tax bracket. Should the company convert

bond into shares? Give reasons.