Q1. Section A (Objective Type)
1. The only viable goal of financial management is:
a. wealth maximization
b. profit maximization
c. assets maximization
d. sales maximization
2. Finance function consists of:
a. procurement of finance
b. expenditure of funds
c. distribution of profits
d. All of the above
3. Investment decisions are taken by one of the following methods:
a. fisher model
b. capital budgeting
c. gorden model
d. MM approach
4. Value maximization can be accomplished by:
a. profit maximization
b. loss minimization
c. maximizing cash inflows
d. minimizing cash flows
5. The full name of EVA is:
a. Economic Value Assets
b. Economic Value Added
c. Extended Value Added
d. Extended Value
Assets
6. Time value of money elucidates that:
a. a unit of money received today is worth more than a unit of money received in future.
b. a unit of money received today is worth less than a unit of money received in future.
c. a unit of money received today is equal to unit of money received in future.
d. a unit of cash received today is equal to a unit of kind received in future.
7. In Funds Flow Statement, Working Capital raise is shown on:
a. Source Side b. Application Side c. either side d. None of above
8. As per the II method of Tondon committee recommendations the borrower must finance _____ of current assets out of long term funds and the banks give the remaining finance:
a. 0.50
b. 0, 15
c. 0, 25
d. 0.75
9. Which is the regulatory authority of banks?
a. SEBI
b. IRDA
c. RBI
d. UGC
10. Which is First Private Sector Bank at India?
a. UTI
b. ICICI
c. HDFC
d. Standard Chartered Bank
11. If the nominal rate of interest is 10% per annum and the compounding is quarterly, the effective rate of interest per annum will be:
a. 10.25%
b. 10.38%
c. 10%
d. 10.10%
12. A student took a loan of Rs. 10,000 from SBI at rate of 10% p.a. What would be the amount of equal? Instalment if he wishes to pay it back in five instalments starting from the year end 5th.
a. Rs. 11,000
b. Rs. 19310
c. Rs. 11,225
d. Rs. 11,125
13. How much amount must an investor invest now in order to receive five annuities starting from end of this year of Rs. 10,000 at 10% p.a. rate of interest?
a. Rs. 40,000
b. 37109
c. 37,910
d. 37091
14. In case of Q.13, if he wishes to get Rs. 10,000 forever, the amount of investment needed is:
a. Rs. 75,000
b. Cannot be determined
c. Rs. 1,00,000
d. None
15. Which present value table can be employed to find out NPV when cash flows are uniform?
a. Annuity
b. Compound
c. Interest
d. It cannot be determined
16. Which technique determines the number of years needed to recover initial investment?
a. NPV
b. Payback period
c. Profitability Index
d. ARR
17. In case of conflict in ranking, __________ technique gives best results than NPV.
a. ARR
b. IRR
c. Payback Period
d. Discounted Payback period.
18. Real cost of capital is obtained by dividing nominal cost of capital by;
a. inflation Rate
b. 1 + inflation Rate
c. inflation Rate – 1
d. inflation rate × 1
19. __________ is a proper techniques of project selection under capital rationing when they are divisible.
a. NPV
b. IRR
c.ARR
d. PV Index
20. What is the value of a levered firm L if it has the same EBIT as an unlevered firm U (with the value of Rs. 700 lakh), having a debt of Rs. 200 lakh and tax rate is 35%?
a.Rs. 770 lakh
b. Rs. 500 lakh
c. Rs. 630 lakh
d. Rs. 900 lakh.
Section B
Short type problems
Q2. X & Y is desirous to purchase a business and has consulted you, and one point on that you are asked to counsel them, is the average amount of working capital which will be required in the first year’s working.
You are given the subsequent estimate and are instructed to add 10% to your computer figure to permit for contingencies:
Set up your computation for the average amount of working capital required.
Q3. The earnings per share of a company is Rs 8 and the rate of capitalization applicable is 10%. The company has before it, an option of adopting i) 50,ii) 75 iii) 100 per cent dividend payout ratio. Evaluate the market price of the company’s quoted shares as per Walter’s Model if it can earn a return of (a) 15, (b) 10 and (c) 5 percent on its retained earnings.
Q4. Make a distinction between Lease and Hire Purchase. What are the situations in which each of the system of financing is better than other?
Q5. describe in detail various sources of finance. Which is the most appropriate one?
Q6. “NPV is always a better measure of project financial feasibility evaluation”. Discuss the statement in light of other methods of investment decisions
Section C
Descriptive type problems.
Q7. Cash Outflow Rs.18000
Cash Inflow Rs. 5600 at the End of the Year for 5 Years
find out IRR (Internal Rate of Return)
Q8. What is meant by Leverage? What are its different kinds? With what kind of risk is allocated with each type of leverage. (Elucidate with illustration)
Q9. The financial manager of A ltd.co. Expects that its EBIT in current year is 10,000. The firm has 5% Deb. Amounting to Rs. 40,000., while 10% Pref. Share amounts to Rs. 20,000. What would be the EPS, under different plans If EBIT is:
1. 6000
2. 14000
Tax rate may be assumed as 35%. No. of equity shares outstanding are 1000.
–D
Long type Numerical/ Case Study
Q10. A proposal to extend ABC Gas Company Ltd’s gas distribution network to NOIDA industrial cluster, about 40 km east of Delhi, at distance of about 20 kms from the ABC’s existing transmission line, is under the consideration of its CEO, Prerna Goyal. The NOIDA industrial cluster is dominated by the textiles industry including text rising, weaving, spinning and yarn units with over 2,500 small and medium size units. The potential of gas consumption in such industries is majorly on account of captive power. Power constitutes 40 -65 percent of the production cost in key target sectors for gas supply. The units in the cluster have been considering lessening of power costs by moving away from the expensive grid supply to captive power generation. The total estimated potential of captive power presently is 45 MW which corresponds to 0.30 million standard cubic meters per day (MSCMD) of gas. The proposed project is essentially an extension of the distribution network in existing Delhi distribution zone.
A market survey of potential customer to assess the gas demand potential in the area has identified over 40 customers with a combined gas demand of 0.25 MSCMD for captive power.
Negotiation for gas supply has also been initiated with them. ABC Gas Ltd has obtained expression of interest for over 0.075 MSCMD. However, timing of gas supply is the key since alternative fuel option such as solid and liquid fuels and wind energy are available. The expression of interest would fall through if gas is not supplied by mid 2008. Amit Kumar, an engineer consultant, is appointed by Prerna Goyal to identify the most feasible and economical route for laying down the gas pipeline. A preliminary site survey is followed by reconnaissance survey by Amit. After conducting Quantified Risk Assessment and evaluating several pipeline options, the consultant has proposed a 12 inch, 150 class low pressure (19 bars) pipeline for a total length of 30 kms from the ABC’s transmission pipeline. The capacity of the proposed pipeline will be 0.75 MSCMD.
The base investment/capital expenditure is estimated to be Rs 24 crore consisting of the following heads:
i) Engineering Rs 0.50 crore
ii) Project clearance Rs 1.2 crore
iii) Material costs Rs 13.2 crore
iv) Contacts Rs 7.7 crore
v) Commissioning Rs 0.10 crore and
vi) Contingency and insurance Rs 1.3 crore.
The pipe line has an expected life of 10 years.
The other parameters of the projects have been identified by the consultant as listed below
1) Volumes build up (in MSCMD)
2) Sales price of Gas, Rs 8.90 per standard cubic meter (SCM) with an increase of 3% every year.
3) Purchase price of Gas Rs. 7 per SCM with an increase of 3 % every year.
4) Variable costs are assume to be constant throughout the 10 year life of the pipeline @ Rs. 28 lakhs per annum (Consisting of pigging of pipeline, Rs. 20 lakhs ; cathodic protection of pipeline, Rs. 2 lakh, supervision cost, Rs. 3 lakh; pipeline surveys Rs. 2 lakh; and electricity charges Rs. 1 lakh).
Assuming a straight line method of depreciation of material cost of initial capital investment for tax purposes and 12% required rate of return, analyze as a financial consultant, the financial viability of the proposal and make a recommendation to the CEO of the ABC Gas Limited.