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Financial Management
Previous Year Question Paper with Solution
B.B.A. LL.B. (Five Years) · Sem 4
2012 Jun (70 marks) Examination
munotes.in
Mumbai
B.B.A. LL.B. (Five Years) Sem 4 Financial Management 2012 Jun (70 marks) Question Paper with Solutions
First published on munotes.in on 21 October 2026.
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The question paper reproduced here is the paper as set by Karnataka State Law University at the 2012 Jun (70 marks) examination.
Contents
The questions below are the paper as Karnataka State Law University set it at the 2012 Jun (70 marks) examination, in the order it was set.
MarksPage
MarksPage
The Paper as Set
The questions in this volume are the questions asked at the 2012 Jun (70 marks) examination, reproduced as Karnataka State Law University set them, in the order it set them. Long reading passages are shortened to their first and last lines and our summary; the original paper prints them in full. Only the answers are ours. See the original question paper.
Duration 2½ hours · Total marks 70 · 20 questions answered
Instructions printed on the paper
- N.B. (1) Answer all 5 Questions. (2) One essay type and one short note question or problem from each Unit have to be attempted, which is referred to as Part (a) and Part (b) in all the Units. (3) Figures to the right indicate marks.
How to use this volume
Solve the paper first, under exam conditions and against the clock. Then read the answers here and mark your own. Reading a solution before attempting the question feels productive and teaches very little, because recognising an answer is not the same as being able to write one.
Q1
Unit I
(a)You are required to determine the WACC of Bata Ltd. The following information is available for your perusal.[9]
Answer
The figures given in the question
| Rs. | |
|---|---|
| Debentures (Rs. 100 per debenture) | 8,00,000 |
| Preference shares (Rs. 100 per share) | 2,00,000 |
i) Rs. 100 per debenture redeemable at par: 20 year maturity, 8% coupon rate, 4% floatation costs, sale price Rs. 100.
ii) Rs.100 preference share redeemable at par : 15 year maturity 10% dividend rate, 5% floatation costs, sale price Rs. 100.
For full marks, cover: what the paper gives (two sources, debentures and preference shares, and no tax rate); the net proceeds of each security after flotation costs; the cost of the redeemable debentures and of the redeemable preference shares by the approximate yield formula; the weights; the WACC; a note on tax and on the missing equity; and a conclusion.
Reading the question. The paper prints only two sources, Rs 8,00,000 of debentures and Rs 2,00,000 of preference shares, and no tax rate. The WACC is therefore worked on these two sources, and the cost of debt is taken before tax.
Step 1: net proceeds
| Security | Sale price (Rs) | Flotation cost | Net proceeds, NP (Rs) |
|---|---|---|---|
| Debenture | 100 | 4 (4% of 100) | 96 |
| Preference share | 100 | 5 (5% of 100) | 95 |
Both are redeemable at par, RV = Rs 100.
Step 2: cost of debentures (Kd)
Interest I = 8 per cent of Rs 100 = Rs 8 a year; n = 20 years.
Kd = [I + (RV - NP) / n] / [(RV + NP) / 2]
Kd = (8 + (100 - 96) / 20) / ((100 + 96) / 2) = (8 + 0.2) / 98 = 8.2 / 98, about 8.37 per cent.
Step 3: cost of preference shares (Kp)
Dividend D = 10 per cent of Rs 100 = Rs 10 a year; n = 15 years.
Kp = [D + (RV - NP) / n] / [(RV + NP) / 2]
Kp = (10 + (100 - 95) / 15) / ((100 + 95) / 2), which is 10.3333 / 97.5, about 10.60 per cent.
Step 4: WACC
| Source | Amount (Rs) | Weight | Cost (%) | Total cost (Rs) |
|---|---|---|---|---|
| Debentures | 8,00,000 | 0.80 | 8.37 | 66,939 |
| Preference shares | 2,00,000 | 0.20 | 10.60 | 21,197 |
| Total | 10,00,000 | 1.00 | 88,136 |
The total cost of debentures is 8,00,000 × 0.083673, about 66,939; of preference shares 2,00,000 × 0.105983, about 21,197.
WACC = 88,136 / 10,00,000 × 100, which comes to about 8.81 per cent.
Check by weights. 0.80 × 8.367 + 0.20 × 10.598 comes to about 6.694 + 2.120, or 8.81 per cent.
Notes
Tax. Debenture interest is tax-deductible. With a tax rate t, the after-tax cost would be [8 (1 - t) + 0.2] / 98, which is lower, and the WACC would fall. Preference dividend is paid from profit after tax, so its cost does not change.
Equity. The paper gives no equity capital. If the company also has equity, its cost (usually the highest) and its weight must be added. The WACC will then be higher than 8.81 per cent.
Conclusion. The debentures cost about 8.37 per cent and the preference shares about 10.60 per cent before tax. Weighted 80 : 20 by their amounts, the WACC of the two printed sources is about 8.81 per cent.
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