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M.B.A.
(sEM. rr) EVEN THEORYEXAMINATION 20I2_I3
F'INANCIAL MANAGEMENT
Time : 3 Hours Total Marks : 100
Note :- Attempt All parts.
PART-I
1. Attempt any four questions : (4x5=20)
(a) Explain the Purpose of Annuity method in time value of
money.
(b) Discuss the role of fixed cost in leverage.
(c) Differentiate between Internal Rate of Return and
Profitability Index.
(d) Operating Cycle in determining working capital requirement.
(") Explain briefly about credit policy in receivable
management.
(0 What is financial leverage and how does it effect the
financial risk ?
PART-II (30)
,'2. A plastic manufacturer has under consideration the proposal of
production of high quality plastic glasses. The necessary
equipment to manufacture the glasses would cost Rs. I lakh
and would last 5 years. The tax relevant rate of depreciation is
'20 per cent on written down value. There is no
other asset in
MBAo27/DPC-48249 [Turn Over
this block. The expected salvage value is Rs. 10,000. The glasses
can be sold at Rs. 4 each. Regardless of the level of reduction,
the manufacture will incur cash cost of Rs. 25,000 each year if
the project is undertaken. The overhead to this new line would
be Rs.5,000. The variable costs are estimated as Rs.2.per
will sell about 75,000 glasses
glass. The manufacturer estimates it
per year; the tax rate is 35 percent. Should the proposed
equipment be purchased ? Assume 20 percent cost of capital
and additional working requirement, Rs 50,000.
OR
Crimson lndustrial Ltd is desirous ofassessing its working capital
requirements for the next year. The finance manager has
collected the following information for the purpose :
Raw materials Rs.90
Direct labour 50
Manufacturing and administrative overhead
(excluding depreciation) 40
Depreciation 20
Selling overheads 30
Total cost 230
The product is subject to excess duty of I 0% (levied on the cost
of production) and is sold at Rs. 300 per unit.
Additional information :
l. Budgeted level of activity is 1, 20,000 units of output for
the nexl year.
2. Raw material costs consist of following: Pig iron Rs.65
per unit, Ferro alloys . 112 month and cast iron borings I 0
per unit.
MBAo2T|DPC-48249
3. Raw materials are purchased from different suppliers,
extending different credit periods :
4. Pig iron, 2 months, Ferro alloys, 1/z tflonth. production
process require full unit (100 per cent) of pig iron and Ferro
4lloys in the beginning ofthe production; cast iron boring is
only to the extent of 50 per cent in the beginning and the
remaining is needed at a uniform rate during this process.
Direct labour and other overheads accrue similarly at a
uniform rate throughout production process.
5. Past trends indicate that the pig iron is required to store for
I month.
6. Finished goods are in a stock for I month.
7. It is estimated that one-fourth of total sales are on cash
basis and the remaining sales are on credit. The past
experience of the firm has been to coilect the credit sales
in 2 months.
8. Average time Olag in paymenr of all overheads is I monlh
,and 1/2 month is the case of direct Iabour.
9. Desired cash balance is to be maintained at Rs. l0 Lakh.
You are required to determine the amount of net working capital
of the firm. State your assumptions, if any.
PART-III
Affempt any four questions : (12.5x4:50)
1
1 "Cost of capital is used by a company as a minimum benchmark
for its yield." Comment. How do you ascertain the cost of equity
capital ?
OR
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lTurn Over
Discuss the concept of relevance and irrelevance theory of
dividend policy. Critically evaluate Miller-Modiglian's dividend
policymodel.
4. What are the principles of financial decision making ? Explain
and illustrate the factors which should be kept in mind while
taking fi nancial decision.
OR
What is risk evaluation and sensitivity analysis ?Analyze the
relevance of sensitivity analysis in capital budgeting.
5. Explain the concept of financial leverage. Examine the impact
of financial leverage on the EPS. Does the financial leverage
always increase the EPS ?
OR
What general concept underlines the EBIT:EPS analysis ? Does
this approach reflect the goal of wealth marimization ?
6. "Cash budget is an important technique of cash management".
Explain. What are the different methods of preparing the cash
budgets ?
oR
Explain briefly some ofthetechniques of inventory management
that rnay be used in a manufacturing concern.
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