MODEL PAPER-I SRI BALAJI SOCIETY PGDM - SECOND SEMESTER EXAMINATION BATCH: 2011 – 2013 FINANCIAL MANAGEMENT - 1
Time : 3Hrs Marks: 100
Instructions 1. Attempt Attempt any 3 questio questions ns from from Q1 to to Q5 [ 22 Marks Marks each] each] 2. Q6 is compulsory and carries 24 Marks[ 4 *6]
3. Use Use of of calc calcula ulator tor is allow allowed ed 4. If a questio question n has A and and B part part,, both need need to be be attempt attempted. ed.
Q1- Given below are the financial statements of SAFAL limited for the year 2006-07, Total number of shares outstanding for the firm is 2.69 crores. In view of the growth opportunities in the near future the firm has been maintaining a policy of 45 % payout Summarized P and L Account of SAFAL enterprises for the year ended 31 st March Particulars Sales Other income Cost of Sales Gross profit Operating expenses: Administration Selling and distribution PBIT Interest Profit before tax - PBT Provision for taxes Profit after Tax - PAT
2006 [ Crores] 132.00 12.00 102.96 29.04
2007 [ crores] 144.00 15.00 110.02 33.98
12.44 4.42
14.36 5.36 24.18
3.00
29.26 4.01
21.18 7.94
25.26 9.47
13.24
15.79
Balance sheet of SAFAL enterprises for the year ended 31 st March 31/03/06 [ Crores] Assets 1
31/03/07 [ crores]
Net Fixed Fixed assets Current assets : Inventory Accounts receivable Cash Less : Current Liabilities Net Current Current Assets Assets Total assets Liabilities Share capital Reserves and surplus Debt – Long term Total Liabilities
31.25 14.56 13.20 1.50 8.55
37.50 16.64 15.43 1.75 11.25
20.71 51.96 27.00 4.96 20.00
22.57 60.07 27.00 6.36 26.71
51.96
60.07
As a financial analyst you are required to analyze and comment on the profitability and the liquidity position of the business by comparing the ratios calculated for 2006 against the ratios calculated for 2007. -----------------------------------------------------------------------------------------------------------Q2- While preparing a project report on behalf of a client you have collected the following facts. Estimate the net working capital required for the project . Add 10 % for contingencies Particulars Amount per unit Estimated cost per unit of production : Raw material Rs 80 Direct labour Rs 30 Overheads [ Exclusive of depreciation , Rs 10 Rs 60 per unit) unit) Total Cost 170 Additional Information Selling price – Rs 200 per unit Level of activity – 1, 04,000 Units of production per annum Raw materials in stock, average 4 weeks Work in progress [assume 50 % completion in case of conversions costs and 100 % completion in case of materials] – average 2 weeks Finished goods in stock – average 4 weeks Credit allowed by suppliers – average 4 weeks
2
Credit allowed to debtors – average 8 weeks Lag in payment of wages – average 1.5 weeks Cash at bank – Rs 25000 A year has 52 weeks. All sales are on credit basis only --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------Q3. The following particulars pertain to C ltd: Profit and Loss Account for the year ended 31 st March 1998
Sales revenue Less : Cost of Goods sold
32,00,000 20,00,000 12,00,000 Add: Add: Gover Governme nment nt compe compensat nsation ion for for loss loss in riots riots 50,000 50,000 12,50,000 Less: Operating expenses 7,90,000 Less: Interest on Debentures 15,000 Less: Depreciation 2,10,000 Less: Co Cost of of is issue of of de debent bentu ures wr written of off 1,000 ,000 Profit before tax 2,34,000 Less – Tax – provision 92,000 1,42,000 Profit after Tax As on 31/03/1997 Other Information Inventories 1.80,000 Debtors 40,000 Bills receivable 30,000 Cash at bank 1,02,000 Creditors 78,000 Bills payable 20,000 Outstanding expenses 31,000
As on 31/03/1998
2,20,000 38,000 55,000 2,48,000 95,000 15,000 44,000
You are also informed that the following important transactions have taken place during the year ended 31.03.1998: 1. Fully paid paid equity shares of the face face value of Rs 2,00,000 2,00,000 were issued issued at a premium of 20 % 2. 10 % debenture debenturess for Rs Rs 3,00,000 3,00,000 were were redeemed redeemed at a premium premium of 2 % 3. Land was purchased purchased for Rs Rs 1,50,000 1,50,000 and the consider consideration ation was was discharged discharged by the the allotment allotment to the vendor of zero percent convertible debentures for the amount
3
4. Dividend Dividend for the year year ended 31.03 .1997 .1997 amounting amounting to to Rs 1,00,000 1,00,000 was was paid 5. Tax paid during the year totaled Rs 95000.
You are required to prepare cash flow statement for the year ended 31.03.1998 [Preferably as per AS-3 Format]
Q4-Pay early limited is planning a major investment to expand its current manufacturing capacity. The cash outflow for the same is expected to be Rs 350 Lakhs. The finance department of the company has projected following cash flows over the next 7 years which is considered to be the life of the project Year 1- 100 Lakhs, Year 2- 150 lakhs, Year 3 – 400 Lakhs, Year 4- 450 Lakhs, Year 5- 300 Lakhs, Year 6- 250 Lakhs, year 7 – 50 Lakhs 1. What What is the payb payback ack peri period od of the proj project ect?? 2. What is the discounted discounted payback payback period period of the project project assuming assuming that the cost of capital is is 15 % 3. What is the NPV and PI of the project project assuming assuming that that the cost cost of capital capital is 13 % ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------Q5A- What is operating leverage and financial leverage .Explain in detail the impact of leverages on the earning per share of a company? Q5B- Describe and elaborate on the relationship of finance with other functions of business. Provide suitable examples to illustrate your point. --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------Q6- Short Notes [Any 4] – 4 * 6=24 1. Turnove Turnoverr rati ratios os and and their their signifi significanc cancee 2. Oper Operat atin ing g cyc cyclle 3. Import Importance ance of of the capit capital al budge budgeting ting decis decision ion 4. Factors affecting dividend policy 5. Payback period method and its limitations
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MODEL PAPER-II SRI BALAJI SOCIETY PGDM - SECOND SEMESTER EXAMINATION BATCH: 2011 – 2013 FINANCIAL MANAGEMENT - 1
Time : 3Hrs Marks: 100 Instructions 5. Attempt Attempt any 3 questi questions ons from from Q1 to Q5 Q5 [ 22 Marks each] 6. Q6 is compulsory and carries 24 marks [ 4*6] 7. Use Use of cal calcu cula lato torr is all allow owed ed 8. If a questi question on has A and B parts. parts. Both need to to be attemp attempted. ted.
Q1- You are presented with the f ollowing figures prepared from the balance sheet of F air dealings limited. Particulars
Year 1
Year 2
Year 3
Debtors
30,000
50,000
60,000
Stock
50,000
50,000
70,000
Plant
12,000
15,000
20,000
Building
10,000
10,000
10,000
1,02,000
1,25,000
1,60,000
11,000
26,000
39,000
Assets
Liabilities Bank 5
Trade creditors
25,000
30,000
50,000
Profit and loss account
10,000
13,000
15,000
Paid up capital [ Rs 10 per share , Rs 7.50 paid up]
56,000
56,000
56,000
1,02,000
1,25,000
1,60,000
Sales
1,00,000
1,50,000
1,50,000
Gross profit
25,000
30,000
25,000
Net Profit
5,000
7,000
5,000
Dividend paid
4,000
4,000
3,000
The opening stock at the beginning of year 1 was Rs 4,000. You are required to calculate in respect of each of the year, the ratios and comment on the changes in the profitability, liquidity and financial position of the company. company.
--------------------------------------------------------------------------------------------------------------------------Q2- Beta Limited and Theta Limited operate in the same line of business of manufacture of rubber components. However their cost structure and financial structures differ substantially, an analysis of their financial performance has revealed the following data: Rs [ Lakh]
Beta Limited
Theta Limited
Sales
750
1100
Variable cost
300
500
Fixed cost
250
200
Interest
75
80
1. Find out out the the operatin operating g leverage leverage and and the finan financial cial leverage leverage for for both both 2. What What is your your inter interpre pretat tation ion of of the same same?? -------------------------------------------------------------------------------------------------------------------------------
6
Q3-A company is planning to invest in a new project. The cost of the project is Rs 70,000 and the life of the project is 5 years with a salvage value of Rs 5000 at the end of the life of the project. .The tax rate is 25 % and the firm uses SLM method of depreciation. The estimated Profit before tax [PBT] from the new project is as follows Year 1- Rs 15,000 Year 2- Rs 20,000 , Year 3- Rs 5000, 5000, Year 4- Rs 10,000 and Year 5- Rs 15000 You are required to calculate the Net Present value and the Profitability Index at 10 % discounting rate and advise the company whether the project should be accepted or not.
Q4- The balance sheet of A company ltd as on 31.3 .1989 is as under:Liabilities Equity share capital
Rs 1,00,000
14 % Preference share capital General reserve 12 % Debentures Current Liabilities
50,000 20,000 30,000 50,000 2,50,000
Assets Fixed Assets 2,50,000 Less – Dep 80,000 Stock in trade
Rs 1,70,000
Sundry debtors Bank
40,000 10,000
30,000
2,50,000
The company wishes to forecast the balance sheet as on 31.3. 1990. The following additional particulars are given below 1. Fixed assets assets costin costing g Rs 50,000 have have been instal installed led on 1.4.1989 1.4.1989,, but the payment payment will will be made on 31.3.1990 2. The fixed fixed assets assets turnover turnover ratio ratio on the basis basis of the gross gross value of of the fixed fixed assets assets would be 1.5 1.5 3. The stock stock turnover turnover ratio ratio would would be 14.4 [ Calculate Calculated d on the basis of of the average average stock] stock] 4. Debt Debtor orss woul would d be 1/9 1/9 of of sale saless 5. Creditors Creditors would would be 1/5 of the the materia materiall consume consumed d 6. In March March 1990 1990 , a dividen dividend d of 10 % on equity equity capita capitall would would be paid paid 7. Rs 25000 25000 , 12 % deben debentures tures have been issued issued on 01.04.198 01.04.1989 9 8. The breaku breakup p of the the cost cost profit profit would would be as as follows follows :Materials – 40 % Labour – 25 % Manufacturing expense- 10 % 7
Office and selling expense- 10 % Depreciation- 5 % Profit – 10 % Prepare the forecasted balance sheet as on 31.3.1990 and show the following resultant ratios 1. Cur Curren rent Ratio atio 2. Fixed Fixed ass asset ets/ s/ Net Net wort worth h rati ratio o 3. Debt Debt – equ equit ity y rat ratio io ----------------------------------------------------------------------------------------------------------------------------Q5A- What are the factors affecting the dividend policy of the company? Also explain the legal and procedural requirements requirements to be fulfilled by the company company at the time of payment of dividend. dividend. Q5B- Explain the various form of B usiness organization in brief.
Q6- Short Notes [Any 4] – 4 * 6=24 1. The capita capitall struct structure ure decisi decision on 2. Cred Credit it rat rating ing 3. Long Long ter term m solv solven ency cy rat ratio ioss 4. Difference Difference between between cash cash flow and funds funds flow statement statement 5. Sour Source cess of wor worki king ng cap capit ital al
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MODEL PAPER-III SRI BALAJI SOCIETY PGDM-SECOND SEMESTER EXAMINATION BATCH: 2011-2013 FINANCIAL MANAGEMENT MANAGEMENT - I
Time: 3Hrs Marks:100 Instructions: 1. Question no no. se seven is is co compulsory. 2. Atte ttempt mpt an any five out of th the remai maining.
Q1 . A company is considering the possibility of manufacturing a particular component which at is being bougt from outside .The manufacture of the component would call for an investment of Rs 750000 in a new machine besides an additional investment of Rs 50000 in working capital . The life of the machine would be 10 years with a salvage, value of Rs 50000. The estimated saving(before tax) would be Rs 180000 p.a. The income tax rate is 50%. The company ‘s required rate of return is 10%. Department is considered on straight line system. Q2. Raju Brother Pvt. Ltd sells googs on a gross profit of 25%. Depreciation is cost of the the production. production. The followi following ng are the annual figures figures give give to you. Rs Sales (two months credit) 18,00,000 Material consumed (one months credit) 4,50,000 9
Wages paid (one month lag in payment) 3,60,000 Administration expenses 1,20,000 (one month lag in payment) Sales promotion expenses 60,000 (paid quarterly in advance) Income tax payable in 4 equal instalment of one falls in the next year Cash manufacturing expenses 4,80,000 (one month lag in payment) The payment keeps one month’s stock each of raw materials and finished goods. It also keeps Rs.100000 in cash. You are required to estimate the working capital requirement of the company on cash basis assuming 15% safety margin
Q3 Using the following information, complete the balance sheet of XYZ Ltd. Long –term Debit to net worth 0.5 to 1 Total Assets turnover 2.5 Times Averages collection period ½ month Inventory turnover 9 months Gross Profit margin 10% Acid test ratio 1;1
Liabilities
Rs.
Assets
Rs
Equity share Capital Retained Earnings Long- term debt Creditors
1,00,000
Fixed assets
-
1,00,000
Inventory
-
Debtors
-
1,00,000
Q4
10
A company’s capital structure consists of the following:
-
Equity share of Rs. 100 each
20 lakh
Retained earnings
10 lakh
9% Preference shares
12 lakh
7 % debentures
8 lakh
Total
50 lakh
The company earns 12% on its capital .the income tax rate is 50%. The company requires a sum of Rs 25 lakh to finance its expansion programe for which following alternatives to it. i.
Issu Issuee of 20, 20,00 000 0 equit equity y shar shares es at at a prem premiu ium m of Rs.25 Rs.25 per per shar share. e.
ii. ii.
Issu Issuee of of 10% 10% pre prefer ference ence sha share ress.
iii. ii.
Issue of of 8% 8%. De Debentu ntures. res. It is estimated that the P/E ratios in the cases of equity, preference and debentures financing would be 21.4,17 and 15.7 respectively .
Q 5.From the following, prepare Income statement of company A, B and C. Briefly on each company’s performance.
Particulars
A
B
C
1. Fina Financ ncia iall lev lever erag agee
3-1
4-1
2-1
2. Inte Intere rest st (Rs (Rs.)
200
300
1,000
5-1
6-1
2-1
66 2/3%
75%
50%
45%
45%
45%
3. Operating leverage 4. Variable cost as % to sales 5. Tax rate
11
Q6 . A company capital structure consists of the following The company earns 12% on capital. The income tax is 50% . the company requires sum of Rs. 25 Rs.
Equity shares of Rs. 100 each
20 lakhs
Retained earnings
10 lakhs
9% Preference share
12 lakhs
7 % debenture
8 lakhs
Total
50 lakhs
lakhs to finance expansion programme for whoch following alternatives are available to it: i.
Issu Issuee of 20, 20,00 000 0 equit equity y shar shares es at at a prem premiu ium m of Rs. Rs. 25 per per shar share. e.
ii. ii.
Issu Issuee of 10% 10% pre prefer ference ence share hare .
iii. ii.
Issue of of 8 % debent bentur urees. It is estimated tht the P/E ratio in then case of equity preference and debenture financing would be 21.4, 17 and 15.7 respectively . which of the three financing alternative would you recommend and why?
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Q .7 Write Short notes on / Explain the following: ( any four)
a) Liqu Liquid idit ity y rati ratios os b) Profitability Profitability ratios ratios c) Sol Solving ving rati ratios os d) Return on capital employed
e) capit capital al gear gearing ing rati ratio o
MODEL PAPER-IV SRI BALAJI SOCIETY PGDM-SECOND SEMESTER EXAMINATION BATCH: 2011-2013 FINANCIAL MANAGEMENT MANAGEMENT - I
Time: 3Hrs Marks:100 Instructions: 1. Question no no. se seven is is co compulsory. 2. Atte ttempt mpt an any five out of th the remai maining.
Q1 . ‘ X’ Ltd Ltd , is considering the purchase of new machine .Two alternatives are available having a cost price Rs. 200000 (two lakhs) each. The following inflows are expected during the five years. Life of both the machines are 5 years.
13
Year machine A Machine B 1 20,000 60,000 2 60,000 80,000 3 80,000 1,00,000 4 1,20,000 60,000 5 80,000 40,000 The company is expecting 10% returns on its capital . the net present value of Rs.1 @10 % are given as follows: 1st Year 0.909 nd 2 Year 0.826 rd 3 Year 0.751 th 4 Year 0.683 th 5 Year 0.620 You are required to appreciate the proposal on the basis of : a. Pay Pay –bac –back k peri period od meth method od b. Average Average rate of return return method method c. Net Net pres presen entt valu valuee meth method od
Q 2. X Ltd., sells goods at a gross profit of 25%, not counting depreciation as part of the cost of goods sold. The annual figures are as follows ; Rs Domestic sales (1 month credit) 12,00,000 Export sales (3 months credit with sales price 10% 10% below domestic domestic price) 5,40,000 Materials used (2 months credit) 4,50,000 Depreciation on fixed assets 60,000 Wages paid ½ month in arrears 3,60,000 Office expenses paid 1 month in arrears 1,20,000 Sales expenses payable quarterly in advance 60,000 Income tax payable in four installments of 1,50,000 Which one Falls due in the next financial year The company normally keeps one month’s stock of raw materialand finished goods and beliving in not utilizing Rs.1,00,000 available to it, including overdraft imit of Rs.50,000 Q 3.
With the help of the following ratios draw the Balance sheet of the company for the year 1998. Current ratio 2.5 Liquidity ratio 1.5 Net working, working, capital capital Rs. 3,00,000 14
Stock turnover ratio(Cost of sales/ Closing stock) Gross profit ratio Fixed Fixed assets assets turnove turnoverr ratio(o ratio(on n cost cost of sales) sales) Debit Collection Period Fixed assets to shareholders net worth` Reserve and Surplus to capital
6 times 20% 2 times times 2 months 0.80 0.50
Q 4. Aries limited wishes to raise additional finance of Rs . 10 lakhs for meeting its investment plans . it has Rs. 2,10,000 in the form of retained earnings available for investment purpose. The following are the details :
1. Debt Debt /Equ /Equit ity y mix mix
30%/ 30%/70 70% %
2. Cost Cost of debt
10%(be 10%(before fore tax) tax) up to Rs. 1,80,000 1,80,000
3. Beyond Rs.1,80,000
16%( before tax )
4. Dividend payout
50% of earnings
5. Expecte Expected d growth growth rate rate in dividend dividend
10%
6. Current Current market market price price per per share share Rs.44 Rs.44 7. Tax rate
50%
You are required :
a) To determi determine ne the pattern pattern for raising the additional additional finance b) To determine determine the the post-tax post-tax average average cost of additional additional debt c) To determine determine the the post-tax post-tax average average cost of retained retained earnings and cost of of equity equity and d) Complete Complete the over over all weighted weighted averages averages after after tax cost cost of additional additional finance. Q5. Calculate the operating leverage , financial leverage and combined leverage from the following data under situation I and II and Financial plan A and B.
15
Installed capacity
4000 units
Actual Production and Sales
75% of the capacity
Selling price
Rs. 30 per unit
Variable cost
Rs. 15 per unit
Fixed cost Under situation I
Rs. 15,000
Under situation II
Rs. 20,000
Capital structure
Financial plan A (Rs.)
B (Rs.)
Equity
10,000
15,000
Debt (Rate of interest at 200%)
10,000
5,000
20,000
20,000
Q 6.The following are the Balance sheets as of Unique ltd. Liabilities
16
1.1.96 31.12.96
Assets
1.1.96
31.13.96
Creditors
1,63000
1,46,000 Cash@ bank
50,000
40,000
Outstanding Exps.
13,000
22,000 Stock
2,02,000
1,90,000
5% debenture
90,000
70,000 Debtors
77,000
73,000
40,000.
44,000 Prepaid Exps.
1,000
2,000
1,00,000
1,00,000
72,000
80,000
5,02,000
4,85,000
(Rs.100 each) Depreciation fund Capital Reserves
6,000
Profit & loss a/c
10,000
Equity share capital
7,800 Land /Bldg. 15,200 Machinery
1,80,000
1,80,000
5,02,000
4,85,000
The following additional information is also available: a) 10% divi dividend dend on on equity equity share share capit capital al was paid in in cash cash . b) Old Machinery Machinery costing costing Rs.12,00 Rs.12,000 0 was sold sold for Rs.4,000 Rs.4,000 and accumul accumulated ated depreciation depreciation on that was Rs.6,000. c) 5% debenture debenture of Rs.20,00 Rs.20,000 0 were redeemed redeemed by purchase purchase from from open open market at Rs.96 per debenture , profit on this redemption was transferred to capital reserves. Prepare fund flow statement Q 7. Write Short notes on / Explain the following: ( Any four)
(a) Trading Trading on equit equity y (b) Financial and operational operational leverage leverage (c) Weighted Weighted average average cost cost of capital (d) Optimum Optimum capital capital structure structure (e) Components Components of working capital
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MODEL PAPER-V SRI BALAJI SOCIETY PGDM-SECOND SEMESTER EXAMINATION BATCH: 2011-2013 FINANCIAL MANAGEMENT MANAGEMENT - I
Time: 3Hrs Marks:100 Instructions: 1. Question no no. se seven is is co compulsory. 2. Atte ttempt mpt an any five out of th the remai maining.
. Q1. After conducting a survey that cost Rs.300000 , X Ltd .., decided to undertake a project for putting a new product in the market . The Comoany’s cut off rate is is 12% . It was estimated that the project would have a life of 5 years . The The project would cost Rs .60,00,000 in plant and machinery in addition to working capital of Rs. 15,00,000. The machine was no scrap value at the end of 5 years. After providing depreciation on straight line basis, profits after tax were estimated estimated as follows Years 1 2 3 4 5
Rs 6,00,000 10,00,000 26,00,000 10,00,000 8,00,000
The present value factor @ 12% per annum are given below: 1st year 0.8729 nd 2 year 0.7972 rd 3 year 0.7118 th 4 year 0.6355 th 5 year 0.5674
Q2. A proforma cost sheet of a company provides the following particurals ; Element of cost Amount per unit Raw material Direct labour Overheads Total cost Profit 30 Selling price The following further particulars are available; 18
80 30 60 170 200
Raw materials are in stock on average one month. Materials are in process on an average half month. Finished goods are in stock on an average one month. Credit allowed by suppliers is one month. Credit allowed to debtors is two months. Lag in payment of wages is 1.5 weeks. Lag in payment of overhead expenses is one month. One fourth of the output is sold against cash. Cash on hand and bank is expected to be Rs.25,000. You are required to prepare a statement showing the working capital needed to finance a level of activity of 1,04,000 units of production. You may be assume that production is carried on evenly throughout the year, wages and overheads accure similarly and a time period of 4 weeks is equivalent to a month. Q3. From the following information, you are required to prepare Balance sheet of A ltd. as on 30 September 1995. Current ratio 1.8;1 Working capital Rs.40,000 Liquid ratio 1.5:1 Fixed asset to shareholders equity 90% Gross profit % 25% Net Profit Profit to share share capital capital 10% Share capital Rs.4,00,000 Stock Stock turno turnover ver ratio ratio (on (on cost cost of goods goods sold) sold) 10 time timess Aver Averag ages es rate rate of outs outsta tand ndin ing g for for the the year year 54 year year th On 30 .september 1995, current assets including stock /debtors and bank balance , Liabilities include share capital and current liabilities and Assets include Fixed assets current assets and development expenditure (not written off so far). th
Q4. XYZ & Co. has the following capital structure as on 31st December : Rs. 11% debentures
5,00,000
10% preference shares
1,00,000
4,000 equity shares of Rs.100 each
4,00,000 10,00,000
Equity shares are quoted at Rs.102, and it is expected that the company will declare a dividend of Rs. 10 per share at the of the current year. The dividend is expected to grow at Rs.10% for the next 5 years. The company’s tax rate is 50%. 19
a. Calculate Calculate the cost of equity equity capital capital and weighted weighted averages averages cost of capital. capital. b. Assuming Assuming the company company can can raise additional additional debentures debentures for Rs. 3 lakhs lakhs at 12%. 12%. Calculate the revised weighted weighted averages codt of capital if the the resultant charges: i.
Incr Increa ease se in divi divide dend nd rate rate from from 10 to 12% 12%
ii. ii.
Redu Reduct ctio ion n in in gro growt wth h rat ratee fro from m 10 10 to to 8% 8%
iii. iii.
Fall Fall in in mar marke kett price price of shar shares es from from Rs.1 Rs.108 08 to to 92. 92.
Q5. Goodshape company has currently , an ordinary share capital of Rs. Rs. 25 lakhs, consisting of 25,000 share of Rs.100 each. The management is planning to raise another Rs.20 lakhs to finance major programme of expansion through one of four possible financing plans . the plans are: i.
Enti Entire rely ly thr throu ough gh ord ordin inar ary y sha share res. s.
ii.
Rs. 10 lakhs lakhs thro through ugh ordinar ordinary y shares shares and Rs. Rs. 10 lakhs lakhs throug through h long-ter long-term m borrowin borrowing g at 8 percent interes interestt per annum. annum.
iii. iii.
Rs. 5 lakhs lakhs throug through h ordinary ordinary share sharess and Rs.15 Rs.15 lakhs lakhs throug through h long-ter long-term m borrowi borrowing ng at 9% interest per annum.
iv.
Rs . 10 lakhs lakhs throu through gh ordinar ordinary y shares shares and Rs.1 Rs.15 5 lakhs lakhs throug through h prefere preference nce shares shares with with 5 percent dividend dividend . The company’s expected earnings before interest and taxes (EBIT) will be Rs.8 lakhs .Assuming a corporate tax rate of 50%. Determine the earnings per share (EPS) in each alternative and comment on the implication of financial leverage.
Q6. Balance sheets of X and Y Co, on 1.1.1987 and 31.12.1987 were as follows:
20
1.1.87
31.12.87
Rs .
Rs.
Creditors
40,000
44,000
Mrs. X’s loan
25,000
-
Loan from bank
40,000
50,000
1,25,000
1,53,000
2,30,000
2,470,000
1.1.87
31.12.87
Rs .
Rs .
Cash
10,000
7,000
Debtors
30,000
50,000
Stock
35,000
25,000
Machinery
80,000
55,000
Land
40,000
50,000
Building
35,000
60,000
2,30,000
2,47,000
Liabilities
Capital
Assets
During the year , a machine costing Rs.10,000 (Accumulated depreciation Rs.3,000) was sold for Rs.5,000. The provision for depreciation against machinery as on 1.1.87 was Rs.25,000 and on 31.12.87 it was Rs.40,000. Net profit for the year 1987 amounted to Rs.45,000. You are required to prepare Cash Flow statement. Q 7.Write Short notes on / Explain the following: any four
a) Impor Importa tance nce of of worki working ng capit capital al
21
b) Net present present value value c) Pay Pay boo book k pe period iod d) Worki Working ng capit capital al cycle cycle e) Prof Profit itab abil ilit ity y Index Index
MODEL PAPER-VI SRI BALAJI SOCIETY PGDM-SECOND SEMESTER EXAMINATION BATCH: 2011-2013 FINANCIAL MANAGEMENT MANAGEMENT - I
Time: 3Hrs Marks:100 Instructions: 1. Question no no. se seven is is co compulsory. 2. Atte ttempt mpt an any five out of th the remai maining.
Q 1. X ltd.., has machine having an additional life of years which cost Rs.1,00,000 and which has a book value value of Rs. 40,000. A new machine machine costing costing Rs. 2,00,000 is available. available. Though its its capacity capacity is the same as that of the old machine , it will mean a saving in variable costs to the extent of Rs. 70,000 per annum. The life of the machine will be 5 years at the end of which it will have a scrap value of Rs.20,000. The rate of income tax is 35% and X Ltd.., does not make an investment, if it yields less than 12%. The old machine, if sold, will fetch Rs.10,000. Q 2. The board of directors of Nanak Engineering Company private ltd.., request you to prepare statement showing the working capital requirements for a level of activity at 1,56,000 units of production. production. The following information is available for your calculation. Cost per unit (Rs) A) Raw material 90 Direct labour 40 Overheads 75 Total 205 Profit 60 Selling price per unit 265 i. B) Raw Raw mate materi rial al are are in in sto stock, ck, on aver averag age,f e,for or one mont month. h. ii. Mate Materi rials als are are in in proce process ss,, (50% (50% comp comple lete te)) on aver average age for for 4 wee weeks ks.. iii. iii. Finis Finished hed goods goods are are stock stock,, on avera average ge ,fo ,forr one one mont month. h. 22
iv. iv. v. vi. vi. vii. vii.
Cred Credit it all allow owed ed by sup suppl plie iers rs is one one mon month th Time Time lag lag in in paym paymen entt fro from m deb debto tors rs is is 2 mon month ths. s. Aver Averag agee lag lag in paym paymen entt of of wag wages es is 1 ½ week weeks. s. Aver Averag agee lag lag in payme payment nt of of ove overhe rheads ads is one mont month. h. 20% of the output is sold against cash. Cash in hand and bank is expected to be Rs.60,000. It is to be assumed that production is carried on evenly throughout the year, wages and overheads accure similarly, and period of 4 weeks is equivalent to a month.
Q3. From the following information, you are required to prepare Balance sheet of A ltd. as on 30th September 1995. Current ratio 1.8;1 Working capital Rs.40,000 Liquid ratio 1.5:1 Fixed asset to shareholders equity 90% Gross profit % 25% Net Profit Profit to share share capital capital 10% Share capital Rs.4,00,000 Stock Stock turno turnover ver ratio ratio (on (on cost cost of goods goods sold) sold) 10 time timess Aver Averag ages es rate rate of outs outsta tand ndin ing g for for the the year year 54 year year th On 30 .september 1995, current assets including stock /debtors and bank balance , Liabilities include share capital and current liabilities and Assets include Fixed assets current assets and development expenditure (not written off so far). Q 4.
From the information given below calculate the weighted cost of capital(before tax) Rs. in lakhs
1. shareholders funds Share capital equity
500
Preference
100
Retained earnings
300
2. loan funds Secured loan
800
Unsecured loan
700
(including inter corporate deposits)
23
-
a) Normal return return on equity equity sharehol shareholder der funds funds articipate articipated d at:15% at:15% b) Dividend Dividend rate on prefere preference nce share : 12% c) Tax Tax rat ratee for for Z Ltd Ltd.: .: 60% 60% d) Interes Interestt on secure secured d loans loans :16.25 :16.25% % e) Interes Interestt on unsecure unsecured d loans loans : 20% 20% Q5. The capital structure of the progress corporation consists of an ordinary share capital of Rs.10,00,000(share of Rs.100 per value) and Rs.10,00,000 of 10 % debenture, sales increased by 20% from 1,00,000 units to 1,20,000 units , the selling price is Rs.10 per units , variable costs amount to Rs.6 per unit and fixed expenses amount to Rs.2,00,000. Rs.2,00,000. The income-tax rate is assumed to be 50%. a) You are required required to calculate the following : i.
The perc percent entag agee incr increa ease se in earni earnings ngs per shar sharee .
ii.
The deg degre reee of financ financia iall lever leverage age at at 1,00,0 1,00,000 00 unit unitss and 1,20 1,20,00 ,00 unit unitss
iii. iii.
The degree degree of operati operating ng leve leverage rage at 1,00,00 1,00,000 0 units units and 1,20,000 1,20,000 unit
iv.
b) Comment Comment on the behavio behaviour ur of operati operating ng and financi financial al leverag leverages es in relati relation on to increas increasee in production from from 1,00,000 units and 1,20,000 units.
Q6. PCB Corporation has plans for expansion which calls for 50% increase in assets. The alternative before the corporation are issue of equity shares or debt at 14%, the balance sheet and profit and loss account are are as given given below: below: Balance sheet as at 31 st December ,1999
Liabilities
Rs .
Assets
Rs .
12% debenture
25
Total assets
200
Ordinary shares 10 lakhs shares of Rs 10 each
100
General Reserve
24
75
200
200
Profit and loss A/c for the year ending 31st December ,1989
Rs. in lakhs Sales
750
Total cost excluding interest
675
E.B.I.T.
75
Interest on debentures
3
EBT
72
Taxes
36
EAT
36
Earnings per share (EPS)
36,00,000
= Rs.3.60
10,00,000 P /E Ratio Market price
= 5 times = Rs.18.00
If the corporation finances the expansion with debt: the incremental financing charges will be at 14 % and P/E Ratio is expected to be at 4 times. If the expansion is through equity the P/E ratio will remain at 5 times. The company expected that its new issue will be subscribed to at premium of 25%. With the information determine the following : i. If the EBIT EBIT is 10% of sales, calculate calculate EPS at sales sales levels levels of Rs. Rs. 4 crores crores . 8 crores crores and Rs. Rs. 10 crores . ii. After expansio expansion n determine determine at what level of EBIT would would remain remain the same same , whether whether new funds are raised by equity/ debts. 25
iii. Using P/E P/E ratio’s ratio’s calculate calculate the market market value value per share at each sales sales level for for both debt debt and equity financing. Q 7.Write Short notes on / Explain the following:
a) Time Time valu valuee of of mon money ey b) Average Average rate of return return c) Cash Cash fro from m oper operat atio ions ns d) Pric Pricee earn earning ingss rati ratio o e) Inter Interes estt cove coverag ragee rat ratio io
MODEL PAPER-VII PAPER-VII SRI BALAJI SOCIETY PGDM-SECOND SEMESTER EXAMINATION BATCH: 2011-2013 FINANCIAL MANAGEMENT MANAGEMENT - I
Time: 3Hrs Marks:100 Instructions: 1. Question no no. se seven is is co compulsory. 2. Atte ttempt mpt an any five out of th the remai maining.
Q1. . M/s. lalvani & Co. has Rs.2,00,000 to invest. The following proposals are under consideration . the cost of capital for the company is estimated to be 15percent. Project Initial Annual cash ) Rs . Rs. A 1,00,000 25,000 8 B 70,000 20,000 20 C 30,000 6,000 10 D 50,000 15,000 10 E 50,000 12,000 20 Rank the above project on the basis of i. Pay-back me method. ii. ii. Net Present sent (NPV) method hod. iii. ii. Prof Profit itab abil ilit ity y Ind Indeex me method thod.. Present value of annuity of Rs.1 received in steadly stream discounted as at the rate of 15%. 8 years = 4.6586 26
10 years= 5.1790 20 years= 6.3345
Q2.Standard Electrical ltd. furnish you with the following information for the year 1997. Rs. Sales (one months credit) 2,40,000 Raw materials (two months credit) 1,20,000 Wages (1/2 month time lag) 30,000 Manufacturing Exps 24,000 (one month time lag) Company always keeps one month’s stock of raw materials and finished goods. Production cycle take ½ months time and it is even throughout the year. During the year 1998, the company expects that i. Pric Pricee of of raw raw mate materi rial alss wil willl go go up by 10%. 10%. ii. Due to agreeme agreement nt with with labour labour union, union, the the compa company ny will will have to pay pay over overall all 5% 5% increase to labour. iii. iii. To cover cover incre increase ase in in cost cost of prod producti uction on the the selling selling pric pricee will will have have to be increas increasee by 20%. iv. iv. Inspi Inspite te of of incr increa ease se in in pric prices es sal sales es wil willl go up by by 25%. 25%. You are required to prepare estimate of working capital requirement for 1998. Q3. Prepare a balance sheet on the basis of the information given below: i. ii. iii. iv. v.
vi. vii. vii. viii viii.. ix. x.
Debtor btorss turno urnove verr ratio 4 Creditors turnover ratio 6 Capital turnover ratio 2 Stock turnover ratio 8 Fixed assets turnover ratio 8 Gross profit ratio 25% 25% Gros Grosss prof profit it duri during ng the the year year Rs.1 Rs.1,0 ,00, 0,00 000 0 Rese Reserv rves es and and surp surplu luss Rs.3 Rs.35, 5,00 000 0 Closi Closing ng sto stock ck is is more more by by Rs.20 Rs.20,0 ,000 00 than than the the open opening ing stock stock.. Ther Theree wer weree no no lon long g –te –term rm liab liabil ilit itie iess .
Q4. In considering the most desirable capital for a company the following statements of the cost of debt and equity capital (after tax ) have been made at various levels of debt-equity mix. Debt as % of total capital employed
27
Cost of
Cost of
debt %
Equity %
0
7.0
15
10
7.0
15
20
7.0
15.5
30
7.5
16
40
8.0
17
50
8.5
19
60
9.5
20
You are required to determine the optimal debt-equity mix for the company by calculating composite cost of capital. Q 5. (i) Find the operating leverage from the the following data: Sales
Rs. 50,000
Variable cost
Rs. 60%
Fixed cost
Rs. 12000
(ii) Find the the financial leverage from the following data: Net worth worth
Rs. 25,00,000 25,00,000
Debt /Equity
3/1
Interest rate
12%
Operating profit
Rs.20,00,000
Q6. Bogus auto ltd., has procured you the following Balance sheets as on 31.3.1997 and 31.3.1998: Liabilities
Equity capital 28
1997 .
1998
2,50,000
3,50,000
50,000 Share premium
40,000
60,000
General Reserves
60,000
62,500
Profit & loss a/c
1,50,000
50,000
Debentures
2,00,000
2,00,000
Secured loans
17,500
1,50,000
Provision for taxation
30,0000
20,000
Creditors
25,000
40,000
Bank overdraft
22,500 8,22,500
Assets
9,55,000
1997
1998
Buildings
3,00,000
3,50,000
Machinery
1,50,000
2,00,000
Furniture
45,000
40,500
Long-term investment
25,000
-
Stock
1,50,000
1,75,000
Debtors
1,00,000
1,25,000
Bills receivable
50,000
40,000
Cash in hand
2,500
24,500
8,22,500
9,55,000
You are required to prepare ‘Funds Flow Statement’ after considering the following information : a) Taxes Taxes paid paid duri during ng the the year year Rs.1 Rs.15,00 5,000 0 29
b) Building was depreciated depreciated @5% @5% and machinery machinery and furniture furniture were were depreciated depreciated by 10% c) A machine machine having having book value Rs.40,000 Rs.40,000 was sold sold at a loss of 10%. 10%. Long term investments were sold at 30% profit which was directly transferred to the General reserves account
Q 7.Write Short notes on / Explain the following:
a) Debt Debt ser servic vicee cove coverag ragee ratio ratio b) Net worth worth c) Importance of fund of fund flow Statement d) Gross and Net working capital
e) Cred Credit it rati rating ng
30
MODEL PAPER-VIII SRI BALAJI SOCIETY PGDM-SECOND SEMESTER EXAMINATION BATCH: 2011-2013 FINANCIAL MANAGEMENT MANAGEMENT - I
Time: 3Hrs Marks:100 Instructions: 1. Question no no. se seven is is co compulsory. 2. Atte ttempt mpt an any five out of th the remai maining.
Q1. After conducting a survey that cost Rs. 2,00,000. Z ltd., decided to undertake a project for putting a new product product in the the market. market. The company’s company’s cut cut off rate rate is12%. is12%. It was was estimated estimated that that the project would have have a life of of 5 years. years. The project project would would cost Rs.40,00 Rs.40,00,000 ,000 in plant plant machinery machinery in addition to working capital of Rs. 10,00,000 .the scrap value of plant and machinery at the the end of 5 years was estimated at Rs.5,00,000. After providing depreciation on straight line basis , profits after tax were estimated as follows; Years 1 2 3 4 5
Profit after tax (Rs) Present value of Rs.1 at 12% 3,00,000 0.8929 8,00,000 0.7972 13,00,000 0.7118 5,00,000 0.6355 4,00,000 0.5674
As certain the net value of the project .
Q2. Grow more ltd. is presently at 60% level producing 36000 units per annum. In view of favourable market conditions it has been decided that from 1st January 1994 the the company would operate at 90% capacity. The following information are available. 31
i.
Existi Existing ng cost cost-pr -price ice struct structure ure per unit is given given Raw material Wages Overhead (variable) Overhead(fixed) Profit
ii.
It is expec expected ted that that the the cost of raw materi material, al, wage wage rate, rate, and sales sales per per unit will will remain remain unchanged in 1994. Raw mater materials ials rema remains ins in stor storee for 2 months months befor beforee they issue issued d to producti production on departm department ent,, raw materials remains in production process for one month. Finishe Finished d goods goods remain remain is is produc productio tion n proce process ss for for one month. month. Credit Credit allow allowed ed to debto debtors rs is 2 mont months.c hs.cred redit it allow allowed ed by credi creditor torss is 3 months months.. Lag in in wages wages and and overhe overhead ad paymen paymentt is 1 month month.. It may may be assu assumed med that that wage wagess and overhead accure evenly throughout the production cycle. You are required to a) Prepare Prepare profi profitt statem statement ent at 90% 90% capaci capacity ty level level and b) Calculate Calculate the working working capital capital requireme requirement nt on an estimate estimated d basis to to sustain sustain the increased production level. Assumption made if any, should be clearly statisfied
iii. iii. iv. v. vi.
below below,, Rs.4.00 Rs.2.00 Rs.2.00 Rs.1.00 Rs.1.00
Q3. From the following figures and ratios, draw out balance sheet and trading and profit and loss a/c . Share capital Rs.1,80,000 Working capital 63,000 Bank overdraft 10,000 There is no ficitious assets. In current assets there is no assets other than stock, debtors and cash. closing stock is 20%higher than the opening stock. Current ratio 2.5 Proprietary ratio 0.7 Stock velocity 4 Net profit profit ratio ratio 10% (to average capital employed employed)) Quick ratio 1.5 Gross profit ratio 20% of sales Debtors velocity 36.5 days. Q4. Given below is the summary of the balance sheet of a company as at 31st December ,1998
Liabilities
32
Balance sheet Rs.
Assets
Rs.
Equity share capital: 20,000 shares of Rs.10 each Reserves &Surplus 8% debenture (redeemable at par in 2003) 2003) Current liabilities: Short term loan Trade creditors
2,00,000
Fixed assets Investment Current assets
4,00,000 50000 2,00,000
130000 1,70000
1,00,000 50,000
6,50,000
6,50,000
You are required to calculate the company’s weighted average cost of capital using balance sheet valuations. The following additional information is also available: i.
8% debe debent ntur urees we were iss issued ued as as par par..
ii.
All interes interestt paymen paymentt are are up-to up-to-dat -datee and equity equity dividend dividend is currentl currently y 12%
iii. iii.
Short Short –ter –term m loan loan carr carrie iess int inter eres estt at at 18% 18% p.a. p.a.
iv.
The share share and debentur debenturee of the the compan company y are are all all quoted quoted on on the stock stock excha exchange nge and and curre current nt market price are as follows:
Equity share
Rs. 14 each
8% debentures
Rs.98 each
Q5. Calculate the degree of operating leverage, financial leverage, and Combined leverage for the following firms and interpret the results.
P
33
Q
R
Output (units)
3,00,000
75,000
5,00,000
Fixed cost (Rs.)
3,50,000
7,00,000
75,000
1-00
7-50
0-10
25,000
40,000
Nil
3-00
25-00
0.50
Variable cost per unit (Rs) Interest exps.(Rs.) Unit selling price (Rs.)
Q6. The summarized balance sheets of XYZ Ltd., as at 31.12.79 and 1980 given below:
Liabilities
Share Capital
34
1979
1980
Assets
1979
1980
4,50,000
4,50,000
Fixed assets
4,00,000
3,00,000
General Reserve
3,00,000
3,10,000
Investment
50,000
60,000
Profit & loss A/c
56,000
68,000
Stock
2,40,000
2,10,000
Creditors
1,68,000
1,34,000
Debtors
2,10,000
4,55,000
Provision for taxation
75,000
10,000
Bank
1,49,000
1,97,000
10,49,000
12,42,000
Mortgage loan
2,70,000
10,49,000
12,42,000
Additional information :
a) Investments Investments costing costing Rs.8000 Rs.8000 were sold during during the the year for Rs.8,500. Rs.8,500. b) Provision Provision for taxation taxation made made during during the year year was rs.9,000 rs.9,000//c) During the the year part of the fixed fixed assets assets costing costing Rs.10,000 Rs.10,000 was sold for Rs.12,000 Rs.12,000 and the profit was was included included in profit profit &loss &loss A/c A/c and d) Divide Dividend nd paid paid during during the the year year amount amounted ed to Rs.40 Rs.40,000 ,000.. You are required to prepare fund flow statement.
Q 7. Write Short notes on / Explain the following:
a) Retu Return rn on on capit capital al empl employe oyed d b) Trading on on equity c) Optim Optimum um capi capita tall struc structu ture re 35
d) Compone Components nts of working working capital capital e) Prof Profit itab abil ilit ity y Index Index
36
