318 2 2 wart toe a 3 whet e wore 4 aun dager # oui A age SRNR ee seme i a A ft OTH A, AT oh sed mo yw A RAT RY |. (a) Why is it inappropriate to seek profit maximization 8s the goal of financial management? How would ‘You justify the adoption of wealth maximization as fan apt substitute for it? (8) (©) A person wants to award a scholarship of Rs, 1000/- per year for the mext 10 years, The first Scholarship will be awarded after the end of one year and thereafter the amount of scholarship will Brow at the rate of 5% per year to offset inflation, Find the sum to be invested now for this scholarship if the rate of interest is 10%. (7) oR (a) “Cash flows occurring at different points of time Fe not comparable”. Explain the reasons and how ‘can they be made comparable. (R) 318 3 (b) A 4-year annuity of Rs. 3000/- per year ii deposited in a bank account that pays 9% interest compounded yearly. The annuity payments begin in year 12 from now. What is the future value of the annuity? o The Compounded Value Annuity factors at 9% 2. ABC Ltd. is considering the introduction of a new product. It is estimated that profits before depreciation would increase by Rs. 1,20,000/- each year for first four years and Rs. 60,000/- each for the remaining, period. An advertisement cost of Rs. 20,000/- is expected to be incurred in the first year, which is not included in the above estimate of profits. The cost will be allowed for tax purpose in the first year. ‘A new plant costing Rs. 2,00,000/- will be installed for the production of the new product. The salvage value of the plant after its life of 10 years is estimated to be Rs. 40,000/-. A working capital investment of Rs. 20,000/: will be required in the year of inatallati4 318 of the plant and a further Rs. 15,000/+ in the following year. The company's tax rate is 30% and it claims written down value depreciation at 33.33%. If) 1y's required rate of return is 20%, should the 318 5 ‘Assume that company is allowed to charge ‘depreciation on straight-line basis for income tax purpose. The estimated before tax and deprecation ‘cash inflows are given below company company introduce thé new product on the basis of ret present value? Ignore tax effect on ProfivLoss Gif [ Yew [1 7 a 7 H ak 0 | 2.7500 | t0 50 | 8000] Ro 4 on sale of asset ‘The Present Value factors at C= EE PEPE [ee | [no [5 Jeo arf [rena [os [om Jom om [ons Js = as) oR conflicting ranking under is @) | (a) Discuss the reasons for ¢ NPV head IRR techniques. Which metho preferable and why? considering a proposal of installing yent would involve ‘and net working (&) A company is ¢* a drying equipment. The equipm 6,00,000/- ‘The expected life of the 3 a cash outlay of Rs capital of Rs. $0,000%- project is 5 years without any salva8e value, be realized in last year Working ca The applicable income-tax rte to the Company is 135%. Ifthe company's opportunity cost of capital js 12%, caleulate the equipment’s Payback Period, 1 Value and. Also advice the Company mn of the Equipment. (1) Net Presea! regarding installa “The Present Values factors at 12%, 14% and 15% Tot [osm ost fos [osm [own Yer Pine TV ne 6 reir 2s ests or ane aaa 2686 (ay Why isthe cont of Debt is generally lower We) the cost of equity? 8) a company is Rs, 10,00,000 pital of ‘The company (b) The share 6a face value of RS: 10. with shares of P10.318 6 nas debt capital of Rs. 6,00,000 at 10% rate of interest. The sales of the firm are 3,00,000 unite per annum and the selling price of Rs.S per unit and the variable cost is Rs. 3 per unit. The fixed cost amounts to Rs. 2,00,000. The company pays tax act 35%, If the sales increased by 10%, calculate (i) Perceotage increase in EPS; (ii) Degree of operating leverage at the two levels; and Degree of financial leverage at the two levels o oR (2) Discuss the concept of trading on equity in etal (8) (b) A-One Ltd. has the following capital structure | Epes ie a OT res) TR OND) Me Preference shares Rs. 10,0,000 3% Debentures 2s 30,00,000 Teiad | R80, 00,000 ‘The market price of company’s equity share is Rs, 20. It is expected that company will pay a 4 @G 318 7 Aividend of Rs 2 per share at the end of current Year, which will grow at 794 for ever. The’ rate is 30%, You are required to calculate the weighted aver cost of capital using book value ‘weights and market value weights o ically evaluate the Net Income and Net Operating Income approach to capital structuce. ®) (©) Companies U and L are identical in every respect except that the former does not use debt in its capital structure, while the Latter employs Rs, 6,00,000/- @ 15% debt. Assuming that (i) all ‘the Modigliani-Miller (MM) approach assumptions are met, (i the corporate tax rate is 30%, (iii) the EBIT Rs. 2,00,000/-, and (iv) the equity capitalization of the unlevered firm is 20%, what ‘will be value of the firms, U and L? Also determine the weighted average cost of capital for both the firms, 0 oR (2) From the following information, ascertain whether the firm is following an optimal dividend policy as per Walter Model?318 Total Earnings Rs. 2.00.08. Number of equity shares (Rs, 100% each) 20,000 Dividend paid Rs. 1,$0,000/- 128 Price/Earnings Ratio ‘The firm is expected to maintain its rate of return con fresh investment. Also find out what should be the P'E ratio at which the dividend policy will have vo effect on the value of the share? (8) (b) From the following data, compute the duration of the operating cycle for each of the two years and ‘comment on the increase/decrease | be BP Assume 360 days per year 'for computational purposes. 0) 18 9 a4 Explain the Baumol's model of cash management (0) What do you understand hy the optimum dividend, policy of the Fim? on Write short notes on any three (a) Gross & Net Working Capital (0) Indifference point (e) Arbitrage process (4) Beonomic Order Quantity (EOQ) (e) Net float (5 Marks Each (9) fadta yeu howea ter A wera ae At ae ce afresh 22 era seman Fre oR sforramren at oer a om fre mae ot ora? (@) ee ea wed 0 ed fae woo /- FA HA 8 ragfn 2a eat Ri ont oragfat ew aS