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B.B.A. LL.B. (Five Years) Sem 4 Financial Management 2024 Aug Question Paper with Solutions

KSLU Solved Question Papers

Financial Management

Previous Year Question Paper with Solution

B.B.A. LL.B. (Five Years) · Sem 4

2024 Aug Examination

munotes.in

Mumbai

First published on munotes.in on 21 October 2026.

Published by munotes.in, Mumbai.

Model answers written and edited by the munotes.in editorial desk.

Passages from this volume may be quoted, in print, online or by an AI system, with credit: name munotes.in and link to this volume's page. The volume may not be reproduced as a whole. Full terms at munotes.in/content-license.

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The question paper reproduced here is the paper as set by Karnataka State Law University at the 2024 Aug examination.

The questions below are the paper as Karnataka State Law University set it at the 2024 Aug examination, in the order it was set.

MarksPage

The Paper as Set

The questions in this volume are the questions asked at the 2024 Aug 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 3 hours · Total marks 80 · 20 questions answered

Instructions printed on the paper

N.B. (1) Answer all five Units. (2) One essay type question and short note/problems is compulsory from each Unit. (3) Figures to the right indicate marks. (4) Answer should be written in English only.

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.

Read the original question paper

Q1

Unit I

(a)A company has on its books the following amount and specific cost of each type of capital.[10]

Answer

The figures given in the question

Type of Capital	Book Value ₹	Market Value ₹	Specific Cost%
Debt	4,00,000	3,80,000	5
Preference shares	1,00,000	1,10,000	8
Equity shares	6,00,000	12,00,000	15
Retained earnings	2,00,000	-	13

Determine the WACC using book value and market value weights.

For full marks, cover: the WACC with book value weights; the problem that retained earnings have no market value of their own; the split of the market value of equity between equity shares and retained earnings; the WACC with market value weights; the other treatment some books use; and a comment on why the two answers differ.

Formula

WACC = total of (amount of each source × its specific cost) / total capital. This is the same as the total of weight × cost.

(a) WACC with book value weights

Source	Book value (Rs)	Specific cost (%)	Total cost (Rs)
Debentures	4,00,000	5	20,000
Equity shares	6,00,000	15	90,000
Preference shares	1,00,000	8	8,000
Retained earnings	2,00,000	13	26,000
Total	13,00,000		1,44,000

For example, 6,00,000 × 15/100 = 90,000 and 2,00,000 × 13/100 = 26,000.

WACC = 1,44,000 / 13,00,000 × 100, which comes to 11.08 per cent.

(b) WACC with market value weights

Working note: market value of retained earnings. Retained earnings are not traded, so they have no market value of their own. They belong to the equity shareholders. So the market value of equity, Rs 12,00,000, covers both the equity shares and the retained earnings. It is split between them in the ratio of their book values, 6,00,000 : 2,00,000, that is 3 : 1.

Equity shares = 12,00,000 × 3/4 = 9,00,000.
Retained earnings = 12,00,000 × 1/4 = 3,00,000.

Source	Market value (Rs)	Specific cost (%)	Total cost (Rs)
Debentures	3,80,000	5	19,000
Equity shares	9,00,000	15	1,35,000
Preference shares	1,10,000	8	8,800
Retained earnings	3,00,000	13	39,000
Total	16,90,000		2,01,800

WACC = 2,01,800 / 16,90,000 × 100, which comes to 11.94 per cent.

The weights shown as percentages

Source	Book weight (%)	Market weight (%)
Debentures	30.77	22.49
Equity shares	46.15	53.25
Preference shares	7.69	6.51
Retained earnings	15.39	17.75
Total	100.00	100.00

Each weight is the source divided by its total. For example, 4,00,000 / 13,00,000 × 100 comes to 30.77 per cent. The book weight of retained earnings (15.385) is rounded up, so that the column adds to 100.

The other treatment

Some books leave retained earnings out of the market value weights, because none is printed. Then the whole Rs 12,00,000 is costed at 15 per cent. The total cost is 19,000 + 1,80,000 + 8,800 = 2,07,800 on Rs 16,90,000. The WACC then comes to 12.30 per cent. The split above is preferred, because retained earnings have their own cost of 13 per cent.

Comment

The market value WACC (11.94 per cent) is higher than the book value WACC (11.08 per cent). The market values the equity at Rs 12,00,000, against Rs 8,00,000 of equity shares and retained earnings in the books. So equity, the costliest source, carries more weight at market value. Debentures, the cheapest source, carry less. Market value weights are better, because they show what the capital is worth today.

Conclusion. (a) With book value weights the WACC is about 11.08 per cent (Rs 1,44,000 on Rs 13,00,000). (b) With market value weights, the equity's market value is split 3 : 1 between equity shares and retained earnings. The WACC is then about 11.94 per cent (Rs 2,01,800 on Rs 16,90,000).

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