MODEL PAPER-I

SRI BALAJI SOCIETY PGDM - SECOND SEMESTER EXAMINATION BATCH: 2011 2013 FINANCIAL MANAGEMENT - 1 Time : 3Hrs Marks: 100

Instructions 1. Attempt any 3 questions from Q1 to Q5 [ 22 Marks each]

2. Q6 is compulsory and carries 24 Marks[ 4 *6]

3. Use of calculator is allowed 4. If a question has A and B part, both need to be attempted.

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 31st 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 12.44 4.42 24.18 3.00 21.18 7.94 13.24 9.47 15.79 4.01 25.26 2007 [ crores] 144.00 15.00 110.02 33.98 14.36 5.36 29.26

Balance sheet of SAFAL enterprises for the year ended 31st March 31/03/06 [ Crores] Assets
1

31/03/07 [ crores]

Net Fixed assets Current assets : Inventory Accounts receivable Cash Less : Current Liabilities Net Current Assets Total assets Liabilities Share capital Reserves and surplus Debt Long term Total Liabilities

31.25 14.56 13.20 1.50 8.55 20.71 51.96 27.00 4.96 20.00 51.96 27.00 6.36 26.71 16.64 15.43 1.75 11.25

37.50

22.57 60.07

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) 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

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 31st March 1998 Sales revenue Less : Cost of Goods sold 32,00,000 20,00,000 12,00,000 Add: Government compensation for loss in riots 50,000 12,50,000 Less: Operating expenses 7,90,000 Less: Interest on Debentures 15,000 Less: Depreciation 2,10,000 Less: Cost of issue of debentures written off 1,000 Profit before tax 2,34,000 Less Tax provision 92,000 Profit after Tax 1,42,000 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 equity shares of the face value of Rs 2,00,000 were issued at a premium of 20 % 2. 10 % debentures for Rs 3,00,000 were redeemed at a premium of 2 % 3. Land was purchased for Rs 1,50,000 and the consideration was discharged by the allotment to the vendor of zero percent convertible debentures for the amount
3

4. Dividend for the year ended 31.03 .1997 amounting to Rs 1,00,000 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 is the payback period of the project? 2. What is the discounted payback period of the project assuming that the cost of capital is 15 % 3. What is the NPV and PI of the project assuming that the cost of 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. Turnover ratios and their significance 2. Operating cycle 3. Importance of the capital budgeting decision
4. Factors affecting dividend policy 5. Payback period method and its limitations

MODEL PAPER-II
SRI BALAJI SOCIETY PGDM - SECOND SEMESTER EXAMINATION BATCH: 2011 2013 FINANCIAL MANAGEMENT - 1 Time : 3Hrs Marks: 100 Instructions 5. Attempt any 3 questions from Q1 to Q5 [ 22 Marks each] 6. Q6 is compulsory and carries 24 marks [ 4*6] 7. Use of calculator is allowed 8. If a question has A and B parts. Both need to be attempted.

Q1- You are presented with the following figures prepared from the balance sheet of Fair dealings limited. Particulars Assets Debtors Stock Plant Building 30,000 50,000 12,000 10,000 1,02,000 Liabilities Bank 5 11,000 26,000 39,000 50,000 50,000 15,000 10,000 1,25,000 60,000 70,000 20,000 10,000 1,60,000 Year 1 Year 2 Year 3

Trade creditors Profit and loss account Paid up capital [ Rs 10 per share , Rs 7.50 paid up]

25,000 10,000 56,000

30,000 13,000 56,000

50,000 15,000 56,000

1,02,000 Sales Gross profit Net Profit Dividend paid 1,00,000 25,000 5,000 4,000

1,25,000 1,50,000 30,000 7,000 4,000

1,60,000 1,50,000 25,000 5,000 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.

--------------------------------------------------------------------------------------------------------------------------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] Sales Variable cost Fixed cost Interest Beta Limited 750 300 250 75 Theta Limited 1100 500 200 80

1. Find out the operating leverage and the financial leverage for both 2. What is your interpretation of the same? -------------------------------------------------------------------------------------------------------------------------------

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, 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 14 % Preference share capital General reserve 12 % Debentures Current Liabilities Rs 1,00,000 50,000 20,000 30,000 50,000 2,50,000 Assets Fixed Assets 2,50,000 Less Dep 80,000 Stock in trade Sundry debtors Bank Rs 1,70,000 30,000 40,000 10,000 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 costing Rs 50,000 have been installed on 1.4.1989, but the payment will be made on 31.3.1990 2. The fixed assets turnover ratio on the basis of the gross value of the fixed assets would be 1.5 3. The stock turnover ratio would be 14.4 [ Calculated on the basis of the average stock] 4. Debtors would be 1/9 of sales 5. Creditors would be 1/5 of the material consumed 6. In March 1990 , a dividend of 10 % on equity capital would be paid 7. Rs 25000 , 12 % debentures have been issued on 01.04.1989 8. The breakup of the cost profit would be as 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. Current Ratio 2. Fixed assets/ Net worth ratio 3. Debt equity ratio ----------------------------------------------------------------------------------------------------------------------------Q5A- What are the factors affecting the dividend policy of the company? Also explain the legal and procedural requirements to be fulfilled by the company at the time of payment of dividend. Q5B- Explain the various form of Business organization in brief.

Q6- Short Notes [Any 4] 4 * 6=24 1. The capital structure decision 2. Credit rating 3. Long term solvency ratios 4. Difference between cash flow and funds flow statement 5. Sources of working capital

MODEL PAPER-III
SRI BALAJI SOCIETY PGDM-SECOND SEMESTER EXAMINATION BATCH: 2011-2013 FINANCIAL MANAGEMENT - I

Time: 3Hrs Marks:100

Instructions: 1. Question no. seven is compulsory. 2. Attempt any five out of the remaining.

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 production. The following are the annual figures 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 months 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 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 1,00,000

Fixed assets Inventory

1,00,000

Debtors

Q4

A companys capital structure consists of the following:

10

Equity share of Rs. 100 each Retained earnings 9% Preference shares 7 % debentures

20 lakh 10 lakh 12 lakh 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. ii. iii. Issue of 20,000 equity shares at a premium of Rs.25 per share. Issue of 10% preference shares. Issue of 8%. Debentures. 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 companys performance.

Particulars

1. Financial leverage 2. Interest (Rs.) 3. Operating leverage 4. Variable cost as % to sales 5. Tax rate

3-1 200 5-1 66 2/3% 45%

4-1 300 6-1 75% 45%

2-1 1,000 2-1 50% 45%

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 Retained earnings 9% Preference share 7 % debenture Total

20 lakhs 10 lakhs 12 lakhs 8 lakhs 50 lakhs

lakhs to finance expansion programme for whoch following alternatives are available to it: i. ii. iii. Issue of 20,000 equity shares at a premium of Rs. 25 per share. Issue of 10% preference share . Issue of 8 % debentures. 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?

12

Q .7 Write Short notes on / Explain the following: ( any four) a) Liquidity ratios b) Profitability ratios c) Solving ratios
d) Return on capital employed

e) capital gearing ratio

MODEL PAPER-IV
SRI BALAJI SOCIETY PGDM-SECOND SEMESTER EXAMINATION BATCH: 2011-2013 FINANCIAL MANAGEMENT - I

Time: 3Hrs Marks:100

Instructions: 1. Question no. seven is compulsory. 2. Attempt any five out of the remaining.

Q1 . X 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 3rd Year 0.751 th 4 Year 0.683 5th Year 0.620 You are required to appreciate the proposal on the basis of : a. Pay back period method b. Average rate of return method c. Net present value method 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% below domestic price) 5,40,000 Materials used (2 months credit) 4,50,000 Depreciation on fixed assets 60,000 Wages paid 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 months 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, capital Rs. 3,00,000
14

Stock turnover ratio(Cost of sales/ Closing stock) Gross profit ratio Fixed assets turnover ratio(on cost of sales) Debit Collection Period Fixed assets to shareholders net worth` Reserve and Surplus to capital Q 4.

6 times 20% 2 times 2 months 0.80 0.50

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 /Equity mix 2. Cost of debt

3. Beyond Rs.1,80,000 4. Dividend payout

30%/70% 10%(before tax) up to Rs. 1,80,000 16%( before tax ) 50% of earnings 10%

5. Expected growth rate in dividend 6. Current market price per share Rs.44 7. Tax rate You are required :

50%

a) To determine the pattern for raising the additional finance b) To determine the post-tax average cost of additional debt c) To determine the post-tax average cost of retained earnings and cost of equity and d) Complete the over all weighted averages after tax cost of 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 Actual Production and Sales Selling price Variable cost Fixed cost Under situation I Under situation II Capital structure

4000 units 75% of the capacity Rs. 30 per unit Rs. 15 per unit

Rs. 15,000 Rs. 20,000

Financial plan A (Rs.) Equity Debt (Rate of interest at 200%) 10,000 10,000 B (Rs.) 15,000 5,000

20,000

20,000

Q 6.The following are the Balance sheets as of Unique ltd. Liabilities 1.1.96 31.12.96 Assets 1.1.96 31.13.96

16

Creditors Outstanding Exps. 5% debenture (Rs.100 each) Depreciation fund Capital Reserves Profit & loss a/c Equity share capital

1,63000 13,000 90,000

1,46,000 Cash@ bank 22,000 Stock 70,000 Debtors

50,000 2,02,000 77,000

40,000 1,90,000 73,000

40,000. 6,000 10,000 1,80,000

44,000 Prepaid Exps. 7,800 Land /Bldg. 15,200 Machinery 1,80,000

1,000 1,00,000 72,000

2,000 1,00,000 80,000

5,02,000

4,85,000

5,02,000

4,85,000

The following additional information is also available: a) 10% dividend on equity share capital was paid in cash . b) Old Machinery costing Rs.12,000 was sold for Rs.4,000 and accumulated depreciation on that was Rs.6,000. c) 5% debenture of Rs.20,000 were redeemed by purchase from 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 on equity (b) Financial and operational leverage (c) Weighted average cost of capital (d) Optimum capital structure (e) Components of working capital

17

MODEL PAPER-V
SRI BALAJI SOCIETY PGDM-SECOND SEMESTER EXAMINATION BATCH: 2011-2013 FINANCIAL MANAGEMENT - I

Time: 3Hrs Marks:100

Instructions: 1. Question no. seven is compulsory. 2. Attempt any five out of the remaining.

. 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 Comoanys cut off rate is 12% . It was estimated that the project would have a life of 5 years . 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 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 3rd year 0.7118 4th 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 to share capital 10% Share capital Rs.4,00,000 Stock turnover ratio (on cost of goods sold) 10 times Averages rate of outstanding for the year 54 year On 30th .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 10% preference shares 4,000 equity shares of Rs.100 each 5,00,000 1,00,000 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 companys tax rate is 50%.
19

a. Calculate the cost of equity capital and weighted averages cost of capital. b. Assuming the company can raise additional debentures for Rs. 3 lakhs at 12%. Calculate the revised weighted averages codt of capital if the resultant charges: i. ii. iii. Increase in dividend rate from 10 to 12% Reduction in growth rate from 10 to 8% Fall in market price of shares from Rs.108 to 92.

Q5. Goodshape company has currently , an ordinary share capital of 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. ii. iii. iv. Entirely through ordinary shares. Rs. 10 lakhs through ordinary shares and Rs. 10 lakhs through long-term borrowing at 8 percent interest per annum. Rs. 5 lakhs through ordinary shares and Rs.15 lakhs through long-term borrowing at 9% interest per annum. Rs . 10 lakhs through ordinary shares and Rs.15 lakhs through preference shares with 5 percent dividend . The companys 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

Liabilities

1.1.87 Rs .

31.12.87 Rs. 44,000 50,000 1,53,000 2,470,000 31.12.87 Rs . 7,000 50,000 25,000 55,000 50,000 60,000

Creditors Mrs. Xs loan Loan from bank Capital

40,000 25,000 40,000 1,25,000 2,30,000

Assets

1.1.87 Rs .

Cash Debtors Stock Machinery Land Building

10,000 30,000 35,000 80,000 40,000 35,000

2,30,000

2,47,000

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) Importance of working capital
21

b) Net present value c) Pay book period d) Working capital cycle e) Profitability Index

MODEL PAPER-VI
SRI BALAJI SOCIETY PGDM-SECOND SEMESTER EXAMINATION BATCH: 2011-2013 FINANCIAL MANAGEMENT - I

Time: 3Hrs Marks:100

Instructions: 1. Question no. seven is compulsory. 2. Attempt any five out of the remaining.

Q 1. X ltd.., has machine having an additional life of years which cost Rs.1,00,000 and which has a book value of Rs. 40,000. A new machine costing Rs. 2,00,000 is available. Though its 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. 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 material are in stock, on average,for one month. ii. Materials are in process, (50% complete) on average for 4 weeks. iii. Finished goods are stock, on average ,for one month.
22

iv. v. vi. vii.

Credit allowed by suppliers is one month Time lag in payment from debtors is 2 months. Average lag in payment of wages is 1 weeks. Average lag in payment of overheads is one month. 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 to share capital 10% Share capital Rs.4,00,000 Stock turnover ratio (on cost of goods sold) 10 times Averages rate of outstanding for the year 54 year On 30th .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 Preference Retained earnings 2. loan funds Secured loan Unsecured loan (including inter corporate deposits) 800 700 500 100 300

23

a) Normal return on equity shareholder funds articipated at:15% b) Dividend rate on preference share : 12% c) Tax rate for Z Ltd.: 60% d) Interest on secured loans :16.25% e) Interest on unsecured loans : 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. The income-tax rate is assumed to be 50%. a) You are required to calculate the following : i. ii. iii. iv. The percentage increase in earnings per share . The degree of financial leverage at 1,00,000 units and 1,20,00 units The degree of operating leverage at 1,00,000 units and 1,20,000 unit b) Comment on the behaviour of operating and financial leverages in relation to increase in production 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 as given below: Balance sheet as at 31st December ,1999 Liabilities 12% debenture Ordinary shares 10 lakhs shares of Rs 10 each General Reserve Rs . 25 100 Assets Total assets Rs . 200

75

24

200

200

Profit and loss A/c for the year ending 31st December ,1989

Rs. in lakhs Sales Total cost excluding interest E.B.I.T. Interest on debentures EBT Taxes EAT Earnings per share (EPS) 36,00,000 10,00,000 P /E Ratio Market price = 5 times = Rs.18.00 750 675 75 3 72 36 36 = Rs.3.60

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 is 10% of sales, calculate EPS at sales levels of Rs. 4 crores . 8 crores and Rs. 10 crores . ii. After expansion determine at what level of EBIT would remain the same , whether new funds are raised by equity/ debts.
25

iii. Using P/E ratios calculate the market value per share at each sales level for both debt and equity financing. Q 7.Write Short notes on / Explain the following: a) Time value of money b) Average rate of return c) Cash from operations d) Price earnings ratio e) Interest coverage ratio

MODEL PAPER-VII
SRI BALAJI SOCIETY PGDM-SECOND SEMESTER EXAMINATION BATCH: 2011-2013 FINANCIAL MANAGEMENT - I

Time: 3Hrs Marks:100

Instructions: 1. Question no. seven is compulsory. 2. Attempt any five out of the remaining.

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 method. ii. Net Present (NPV) method. iii. Profitability Index method. 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 months stock of raw materials and finished goods. Production cycle take months time and it is even throughout the year. During the year 1998, the company expects that i. Price of raw materials will go up by 10%. ii. Due to agreement with labour union, the company will have to pay overall 5% increase to labour. iii. To cover increase in cost of production the selling price will have to be increase by 20%. iv. Inspite of increase in prices sales will go up by 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. viii. ix. x. Q4.

Debtors turnover ratio 4 Creditors turnover ratio 6 Capital turnover ratio 2 Stock turnover ratio 8 Fixed assets turnover ratio 8 Gross profit ratio 25% Gross profit during the year Rs.1,00,000 Reserves and surplus Rs.35,000 Closing stock is more by Rs.20,000 than the opening stock. There were no long term liabilities .

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 Cost of debt % Cost of Equity %

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0 10 20 30 40 50 60

7.0 7.0 7.0 7.5 8.0 8.5 9.5

15 15 15.5 16 17 19 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 following data: Sales Variable cost Fixed cost Rs. 50,000 Rs. 60% Rs. 12000

(ii) Find the financial leverage from the following data: Net worth Debt /Equity Interest rate Operating profit Q6. Bogus auto ltd., has procured you the following Balance sheets as on 31.3.1997 and 31.3.1998: Liabilities Equity capital
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Rs. 25,00,000 3/1 12% Rs.20,00,000

1997 . 2,50,000

1998 3,50,000

50,000 Share premium General Reserves Profit & loss a/c Debentures Secured loans Provision for taxation Creditors Bank overdraft 8,22,500 40,000 60,000 1,50,000 2,00,000 17,500 30,0000 25,000 60,000 62,500 50,000 2,00,000 1,50,000 20,000 40,000 22,500 9,55,000

Assets Buildings Machinery Furniture Long-term investment Stock Debtors Bills receivable Cash in hand

1997 3,00,000 1,50,000 45,000 25,000 1,50,000 1,00,000 50,000 2,500

1998 3,50,000 2,00,000 40,500 1,75,000 1,25,000 40,000 24,500

8,22,500

9,55,000

You are required to prepare Funds Flow Statement after considering the following information : a) Taxes paid during the year Rs.15,000
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b) Building was depreciated @5% and machinery and furniture were depreciated by 10% c) A machine having book value Rs.40,000 was sold at a loss of 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 service coverage ratio b) Net worth
c) Importance of fund flow Statement d) Gross and Net working capital

e) Credit rating

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MODEL PAPER-VIII
SRI BALAJI SOCIETY PGDM-SECOND SEMESTER EXAMINATION BATCH: 2011-2013 FINANCIAL MANAGEMENT - I

Time: 3Hrs Marks:100

Instructions: 1. Question no. seven is compulsory. 2. Attempt any five out of the remaining.

Q1. After conducting a survey that cost Rs. 2,00,000. Z ltd., decided to undertake a project for putting a new product in the market. The companys cut off rate is12%. It was estimated that the project would have a life of 5 years. The project would cost Rs.40,00,000 in plant machinery in addition to working capital of Rs. 10,00,000 .the scrap value of plant and machinery at 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 company would operate at 90% capacity. The following information are available.
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i.

Existing cost-price structure per unit is given below, Raw material Rs.4.00 Wages Rs.2.00 Overhead (variable) Rs.2.00 Overhead(fixed) Rs.1.00 Profit Rs.1.00 It is expected that the cost of raw material, wage rate, and sales per unit will remain unchanged in 1994. Raw materials remains in store for 2 months before they issued to production department, raw materials remains in production process for one month. Finished goods remain is production process for one month. Credit allowed to debtors is 2 months.credit allowed by creditors is 3 months. Lag in wages and overhead payment is 1 month. It may be assumed that wages and overhead accure evenly throughout the production cycle. You are required to a) Prepare profit statement at 90% capacity level and b) Calculate the working capital requirement on an estimated basis to sustain the increased production level. Assumption made if any, should be clearly statisfied

ii. iii. iv. v. vi.

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 ratio 10% (to average capital 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 Balance sheet Rs. Assets Rs.

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Equity share capital: 20,000 shares of Rs.10 each Reserves &Surplus 8% debenture (redeemable at par in 2003) Current liabilities: Short term loan Trade creditors

2,00,000 130000 1,70000 1,00,000 50,000

Fixed assets Investment Current assets

4,00,000 50000 2,00,000

6,50,000

6,50,000

You are required to calculate the companys weighted average cost of capital using balance sheet valuations. The following additional information is also available: i. ii. iii. iv. 8% debentures were issued as par. All interest payment are up-to-date and equity dividend is currently 12% Short term loan carries interest at 18% p.a. The share and debenture of the company are all quoted on the stock exchange and current market price are as follows:

Equity share 8% debentures

Rs. 14 each Rs.98 each

Q5. Calculate the degree of operating leverage, financial leverage, and Combined leverage for the following firms and interpret the results.

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Output (units) Fixed cost (Rs.) Variable cost per unit (Rs) Interest exps.(Rs.) Unit selling price (Rs.)

3,00,000 3,50,000 1-00 25,000 3-00

75,000 7,00,000 7-50 40,000 25-00

5,00,000 75,000 0-10 Nil 0.50

Q6. The summarized balance sheets of XYZ Ltd., as at 31.12.79 and 1980 given below:

Liabilities

1979

1980

Assets

1979

1980

Share Capital

4,50,000

4,50,000

Fixed assets

4,00,000

3,00,000

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General Reserve Profit & loss A/c Creditors Provision for taxation Mortgage loan

3,00,000 56,000 1,68,000 75,000

3,10,000 68,000 1,34,000 10,000 2,70,000

Investment Stock Debtors Bank

50,000 2,40,000 2,10,000 1,49,000

60,000 2,10,000 4,55,000 1,97,000

10,49,000

12,42,000

10,49,000

12,42,000

Additional information : a) Investments costing Rs.8000 were sold during the year for Rs.8,500. b) Provision for taxation made during the year was rs.9,000/c) During the year part of the fixed assets costing Rs.10,000 was sold for Rs.12,000 and the profit was included in profit &loss A/c and d) Dividend paid during the year amounted to Rs.40,000. You are required to prepare fund flow statement.

Q 7. Write Short notes on / Explain the following: a) Return on capital employed b) Trading on equity c) Optimum capital structure
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d) Components of working capital e) Profitability Index

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