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Financial Management Sample .pdf



Original filename: Financial Management Sample.pdf
Author: Dr. Sireesha Nanduri [SMU DE]

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DRIVE
PROGRAM
SEMESTER
SUBJECT CODE &
NAME
BK ID
CREDIT
MARKS

WINTER 2013
MBADS/ MBAFLEX/ MBAHCSN3/ MBAN2/ PGDBAN2
II
MB0045
FINANCIAL MANAGEMENT
B1628
4
60
ASSI
GNM
ENT

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Note: Answer all questions. Kindly note that answers for 10 marks questions
should be approximately of 400 words. Each question is followed by evaluation scheme.

Q.No
1

Question
Marks
Total Marks
Capitalisation of a firm refers to the composition of its long —term funds debt and equity.
Discuss the theories of capitalization.
10

2

Explain each theory of capitalisation
2*5
A) The share of Megha Ltd is sold at Rs 500 a share. The dividend likely to be declared
by the company after one year is Rs 25 per share. Hence, the price after one year is
expected to be Rs 550. What is the return at the end of the year on the basis of likely
dividend and price per share?
B)

A bond of face value of Rs 1000 and a maturity of 3 years pays 15% interest annually.
What is the market price of the bond if YTM is also 15 %.

10

5
A Problem

5

B problem
3

Discuss the sources of capital of a company. Analyse the factors that affect the capital
structure.
10
a) Sources

5

b) Factors that affect the capital structure

5

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4

A project costs Rs 50,000. It is expected to generate cash inflows as shown in table. If the risk
free rate is 10%, compute NPV.

10
5

Compute NPV
10
a) Annual demand of a company is 30,000 units. The ordering cost per order is Rs 20
(fixed) along with a carrying cost og Rs 10 per unitper anum. The purchase cost per unit
i.e., price per unit is Rs 32 per unit. Determine EOQ, total number of orders in a year
and the time gap between two orders.
10

6

a) EOQ

5

b) total number of orders in a year and

3

Discuss
dividend
policy of two
Dabur
India Ltd for the last
c) the time
gap between
orders.
2 three years.
10
Analyse the dividend policy of Dabur India Ltd. For 3*3
three years
Comment on dividend policy

1

Year

Cash inflows

Certainty
equivalent

1

32000

0.9

2
27000
0.6
1. Capitalisation of a firm refers to the composition of its long —term funds debt and
3
20000
0.5
equity. Discuss the theories of capitalization.

4

10000

0.3

Ans: There are two recognized bases for capitalizing new companies

2 A)

The share of Megha Ltd is sold at Rs 500 a share. The dividend likely to be declared

by the company after one year is Rs 25 per share. Hence, the price after one year is expected
to be Rs 550. What is the return at the end of the year on the basis of likely dividend and price
per share?
Ans:

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Holding period return = (D1 + Price gain/loss) / purchase price
= (25 + 50) / 500 =

B) A bond of face value of Rs 1000 and a maturity of 3 years pays 15% interest annually.
What is the market price of the bond if YTM is also 15 %.

Ans:
Yield to maturity(YTM) = [(Face value/Bond price)1/Time period]-1
= [(1000/289.86)1/3]-1

= (42.64 – 1)
= 41.64

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3. Discuss the sources of capital of a company. Analyse the factors that affect the capital
structure.

Ans:
1. Trade or supplier credit

Payment terms offered by your suppliers are a potential source of credit. Study the discounts for
early payment and the penalty for late payment to determine the true cost of the credit. While some
suppliers will extend credit only to well-established, proven firms, many will extend limited credit
to new businesses to encourage another outlet for their merchandise. Planning for use of trade credit
is essential. To establish good trade credit, a new business must make timely payments as agreed.
Trade credit is effectively used by large businesses to buy products at lower cost than small firms.
Do not depend too much on trade credit from one supplier. If repayment problems arise, you may
find your major source for supplies cut off when you need it the most.

2. Life insurance policies
A standard feature of most life insurance policies (except term insurance) is the owner’s ability to
borrow against the cash value of the policy. The money can be used for any business or personal
need. It normally takes two years for a policy to accumulate sufficient cash value. You may borrow
up to 95 percent of the cash value of the policy for an indefinite period of time. As long as you
continue to pay the insurance premiums, the interest can frequently be deferred indefinitely. The
policy loan will reduce the dollar value of the policy and, in case of death, the loan is repaid first
and then the beneficiaries receive the remainder. Some older life insurance policies guarantee very

favorable interest rates.

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3. Friends and relatives

It is best not to borrow from friends and relatives, but many people do. If you must borrow from a
friend or relative, do it on a business basis by putting the agreement in writing. Check with a lawyer
if you want a binding, legal agreement. You may also get a sample business loan contract form
from a bank or lending institution. Use it as a basis for a written agreement that both parties find
acceptable. Unrealistic and/or naive investment expectations have ruined many friendships and

4. A project costs Rs 50,000. It is expected to generate cash inflows as shown in table. If the
risk free rate is 10%, compute NPV.

Cash
Year inflows

Certainty

1

32000

0.9

2

27000

0.6

3

20000

0.5

4

10000

0.3

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Ans:
Cash
Year inflows
Certainty Factor
1
32000
0.9
28800
27000
0.6
16200

3
4

20000
10000

0.5
0.3
NPV

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5. Annual demand of a company is 30,000 units. The ordering cost per order is Rs 20
(fixed) along with a carrying cost og Rs 10 per unitper anum. The purchase cost per
unit i.e., price per unit is Rs 32 per unit. Determine EOQ, total number of orders in a
year and the time gap between two orders.
a) EOQ
b) total number of orders in a year and
c) the time gap between two orders.

Ans:

Q x

√(2x30000x20) = 346 units√10
K = Rs.20
Kc = Rs.10
D = 30,000

2DK 
Kc

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6. Discuss the dividend policy of Dabur India Ltd for the last three years.
Ans:
Dabur is a leading Indian FMCG company, offering products in the hair oil, shampoo, oral care,
home care, skin care, foods and healthcare categories. The company has many iconic brands such as
Dabur, Vatika, Hajmola, Real and Fem. It has 17 manufacturing facilities, with a presence in over
60 countries. The company is currently headed by Mr Sunil Duggal.

DIVIDEND SHALL BE DECLARED OR PAID ONLY OUT OF i) Current Year’s profit
a)

After providing for depreciation in accordance with law b) After transferring to the reserves

such amount of Profit
as may be prescribed, or

Dividend payout

Announced
10/28/13
4/30/13

Amount Period Change Record
INR 0.75

Q2 14

11-062013

Payable
10/28/13
7/19/13

4/30/12

7/20/12

4/28/11

4/28/11

10/27/10

10/27/10

6/18/10

6/18/10

10/26/09

10/26/09

4/29/09

4/29/09

1/28/09

0.75

N/A

1/28/09

1/28/09

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