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Student’s Regn, No.
ST. XAVIER'S UNIVERSITY, KOLKATA
CONTINUOUS INTERNAL ASSESSMENT [EVEN SEMESTER, 2022-23]
SEMESTER - VI
PAPER CODE : BNHRDS631T FULL MARKS : 30
Instructions :
* Use fountain pen or ball-point pen of blue or black ink only.
* Answer in your own words as far as practicable
© Do not write anything on the Question paper other than your Regn, No. in the slot provided on
the top of this page.
Answer any three questions, All questions carry equal marks,
1. Define the concept ‘Monetary Policy Reaction Function’. What are different components
associated with monetary policy reaction function? . State and illustrate challenges faced
by central banks in emerging market economy to conduct monetary policy. [3+3+4=10]
2. Cusic Industries had the following operating results for 2012: sales 5 $19,900; cost of goods
sold 5 $14,200; depreciation expense 5 $2,700; interest expense 5 $670; dividends paid 5
$650, At the beginning of the year, net fixed assets were $15,340, current assets were
$4,420, and current liabilities were $2,470. At the end of the year, net fixed assets were
$16,770, current assets were $5,135, and current liabilities were $2,535. The tax rate for
2012 was 40 percent. (2.5+2.5+2.5+2.5 = 10]
a. Whatis net income for 2012?
b. — Whatis the operating cash flow for 2012?
— Whatis the cash flow from assets for 2012? Is this possible? Explain.
d. — Ifno new debt was issued during the year, what is the cash flow to creditors? What is
the cash flow to stockholders? Explain and interpret the positive and negative signs
of your answers in (a) through (d).
3. Distinguish between ordinary money and high-powered money. In this regard explain the
concept of H-theory of money supply. Assuming a constant proportion of demand deposit
(DD) as demand for currency (C4) and reserve held (R*) by the commercial banks; derive
the expression for money supply using H-theory. [3+3+4= 10]
4, ABC Co. and XYZ Co. are identical firms in all respects except for their capital structure, ABC
is all equity financed with $750,000 in stock. XYZ uses both stock and perpetual debt; its
stock is worth $375,000 and the interest rate on its debt is 8 percent. Both firms expect
EBIT to be $86,000. Ignore taxes. (2.5+2.5+2.5+2.5 = 10]
a. _ Richard owns $30,000 worth of XYZ's stock. What rate of return is he expecting?
b. Show how Richard could generate exactly the same cash flows and rate of return by
investing in ABC and using homemade leverage.
— Whatis the cost of equity for ABC? Whats it for XYZ?
d. Whatis the WACC for ABC? For XYZ? What principle have you illustrated?
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