Rustomjee Business School Rustomjee Business School
Class M 14, Sem3 Date: 15th November, 2013 Subject: Advance Financial Mgmt. Maximum marks: 60 , Time: 3 Hours Sec A Answer any FIVE questions. All questions carry equal marks. Q1 Explain the important functions of either Credit Rating Information Services of India Ltd. (CRISIL) or Information and Credit Rating Services Ltd. (ICRA). Q2 The Balance Sheet of International Trade Ltd. as on 31st March, 2008 is as under Liabilities Rs.(Lacs) Assets Rs.(Lacs)
Equity Share Capital (Rs. 10 per share) 90 Building 150
10% Long Term debt 120 Machinery 75
Retained Earnings 30 Stock 50
Current Liabilities 60 Debtors 20
Total 300 Total 300
The income assets turnover ratio of the company is 3, its fixed operating cost is 1/6 of sales and variable operating cost is 50% of sales. The corporate tax rate is 35%. You are required to calculate:
The operating, financial and combined leverages.
The market price of the share if the P/E multiple is 2.5.
The level of EBIT if the EPS is (a) Rs. 15 and (b) Rs. 25.
Q3 The following information is available in respect of a company: Capitalization Rate (ke) = 0.12
EPS = Rs. 15
Rate of return on investment = (1) 0.15 (2) 0.10
The company wants to know the effect on the market price of its shares under the two possibilities of ( r ) i.e. 0.15 and 0.10 under the two options. If it does not declare any dividend, and
If it declares Rs. 15 as dividend.
Using ‘Walter’s model’ explain the results obtained by you. Q4 The existing capital structure of Textile India Ltd. is as under: Equity shares of Rs. 100 each 40,00,000
Retained Earnings 10,00,000
9% Preference Shares 25,00,000
7% Debentures 25,00,000
The company wants to raise Rs. 25,00,000 for its expansion project for which it is considering the following options: Issue of 20,000 equity shares at a premium of Rs. 25 per share, Issue of 10% preference shares, or
Issue of 9% debentures.
Company’s return on...
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