Financial Management Prelim Question Paper 2013 – Shreya Classes

Subject: Financial Management

Notes:

Section 1 is compulsory & from Section 2 attempts any 3.

Section 1

Q1) Explain in brief:                                                                                               (15) Marks

(a)  Cost of Retained Earnings

(b)  Opportunity Cost of Capital

(c)   Working Capital Cycle

(d)  Seasonal Working Capital

(e)  Zero Working Capital

Q2) Case Study:

(A)  MPS                                  Rs. 28                                      (5) Marks

No. of Equity Shares         20,000

Face Value                         Rs. 10

Growth Rate in Dividend  @ 8%

Dividend amount               Rs. 4 Lakhs

Ke =?

(B) All India Ltd. Is having capital of Rs. 20, 00,000 divided into Debt 60% and equity capital – 40%                                                    (10) Marks

The debt carries interest @ 16%

The total income tax is @ 40%

The present EBIT is @ 40% on capital

The company plan to expand its activities for which its needs Rs. 5,00,000. It is possible to borrow @ 16% in such manner as to have revised Debt 64% and equity 36%

The incremental EBIT will be Rs. 2, 50,000

You are required to calculate:

(1) Present and revised EPS

(2) Market price if reasonable return is 15%

(3) Weighted average cost of capital in both area

Section 2

Q3) Arjun Enterprise expect to sale 5,200 units @ Rs. 100 per unit. Its cost structure is:                                                                        (10) Marks

Assuming a year to be equivalent to 52 weeks and a period 4 weeks equal to one month, estimate the working capital requirements.

The stock and credit period are:

(a) Stock held in Raw Material and Finished Goods – 4 weeks each.

(b) Processing time – ½ month.

(c)  25% of sales and 20% of purchases are expected on Cash basis.

(d) Credit offered and enjoyed by the enterprise is 1 month.

(e) Minimum Cash Balance required Rs. 50,000.

(f)  Though all activities are evenly spread over a variation of 10% may arise, for which provision to be considered.

Prepare an Estimate of Working Capital requirement stating the assumptions made wherever required.

Q4) Akash Enterprises Ltd. Provides the following information for the year 2007.                                                                                            (10) Marks

(1) Project annual material and Labour cost of the Co. is Rs. 16,20.000 and     Rs. 14,800,000 respectively

(2) Cost Of sales consists of Material, Labour and Overhead Cost only

(3) Production and sales take place evenly throughout the year

(4) As per the credit policy of the Co. Debtors (at selling price) at two months credit will be Rs. 5,50,000. However for working capital statement, investment in Debtors is to be considered at cost. Of the total sales 25% are on cash basis.

(5) Raw Materials are in stock on an average for 1 month

(6) Finished goods are in stock on an average for half a month

(7) Credit allowed by suppliers is one month, but 10% of purchases are on cash basis

(8) Materials remain in processes (valued at cost of Raw Material plus 50 % of Labour and Overheads) on an average for half month

(9)  Company sells goods at 20% profit on selling price

(10)Time lag in payment of wages and overheads is half month

(11) Cash balance to be maintained at 10% of Net Working Capital excluding such Cash Balance

You are required to prepare a statement showing the Working Capital Requirements of Aakash Enterprises Ltd. For the year 2007. (Ignore paisa in your calculation)

Q5)  Beta Ltd. Wishes to raise additional funds of Rs. 20,00,000 for meeting its investment plans. It gas Rs. 4,00,000 in the form of retained earnings available for investment purposes. The following are further details:

(1) Debt/ Equity mix 40%/60%                                             (10) Marks

(2) Cost of debt:
Upto Rs. 5,00,000           10% (before tax)

Beyond Rs. 5,00,000       12% (before tax)

(3) Last year earning per share Rs.4

(4) Dividend pay out 50% of earnings

(5) Expected growth rate in dividend 10%

(6) Current market price per share Rs. 44

(7) Rate of income tax 50%

You are required to determine:

(1) Pattern for raising the additional finance

(2) Post tax average cost of additional debt

(3) Cost of retained earnings and equity

(4) Weighted average after tax cost of additional finance.

Q6) Explain various types of Working Capital                                  (10) Marks