JUNE 2011 EXAMINATION
Time: Three Hours
Maximum Marks: 100
The paper is divided into three sections: Section A, Section B and Section C. 2.
There are seven questions in Section A of 10 marks each. Attempt any four. 3.
Section B has 5 questions of 15 marks each. Attempt any three. 4.
All the questions of Section C (Case Study) are compulsory. This section is of 15 marks.
Marks will be awarded for the right procedure also in numerical questions.
Section – A
1. Time value of money means that the value of money changes over a period of time. That is a sum of money received today is worth more than if the same is received after sometime. Elaborate.
2. Capital budgeting decisions are very important, but they pose difficulties, which shoot from three principal sources: measurement problem, uncertainty and temporal spread. Explain.
3. Write a note on EBIT-EPS analysis giving suitable examples.
4. Compare the advantages and disadvantages of different types of sources of long-term financing of working capital.
5. “Ratios are indicators – sometimes pointers but not in themselves powerful tool of management decision making”. Explain.
6. “Working capital deals with the decision regarding the appropriate mix and level of current assets and current liabilities”. Elucidate the statement.
7. What is hedging approach of current asset financing? Discuss the basic premise of the hedging approach to finance funds requirements. What are the effects of this approach on the profitability and risk?
1. A project costs Rs. 5,00,000 and has a scrap value of Rs. 1,00,000. Its stream of income before depreciation and taxes during first year through five years is Rs. 1,00,000, Rs. 1,20,000, Rs. 1,40,000, Rs. 1,60,000 and Rs. 2,00,000. Assume a 50 percent tax rate and depreciation on straight line basis. Calculate the accounting rate for the project. Also state whether you recommend the project for investment when management expects a rate of return of 10 percent.
2. PSGC has provided the following information and requested you to calculate (a) WACC using book value weights and (b) weighted marginal cost of capital (assuming that specified cost do not change).
Source of Finance
After tax cost %
PSGC wishes to raise an additional capital of Rs. 12, 00,000 for the expansion of the project. The details are as follows.
Rs. 3, 00,000
Rs. 3, 00,000
Rs. 6, 00,000
3. Following is the balance sheet and income statement of Green fields Ltd. for the year ended 31st march 2011.
Income statement for the year ended 31st March 2011.
Less: Cost of goods sold
Less: Selling and distribution expenses
Less: Interest expenses
Earnings before tax
Balance sheet as on 31st March 2011
Paid-up capital (40,000 equity shares of Rs 10 each, fully paid up) Retained earnings
Other current liabilities
Net fixed assets
Price per share: Rs. 15
Industry’s average Ratios are:
Sales to inventory
Average collection period
Debt to asset
Debt equity ratio
Times interest earned
Net profit margin
Return to total assets
From the above facts and figures, you are required to;...
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