KSLU Solved Question Papers
Financial Management
Previous Year Question Paper with Solution
B.Com. LL.B. (Five Years) · Sem 4
2012 Dec (100 marks) Examination
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B.Com. LL.B. (Five Years) Sem 4 Financial Management 2012 Dec (100 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 Dec (100 marks) examination.
Contents
The questions below are the paper as Karnataka State Law University set it at the 2012 Dec (100 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 Dec (100 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 3 hours · Total marks 100 · 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 reffered as Part (a) and Part (b). (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)Following are the details regarding capital structure of Infosys Co. Ltd.[15]
Answer
The figures given in the question
| Sources | Amount | Cost |
|---|---|---|
| Equity shares | 15,00,000 | 20% |
| Preference shares | 6,00,000 | 15% |
| Retained Earnings | 3,00,000 | 10% |
| Long term debt | 6,00,000 | 10% |
You are required to calculate WACC using
a) Book value as weights.
b) Book value as total cost.
For full marks, cover: the formula of the weighted average cost of capital; the reading of the costs as after-tax costs; (a) the WACC with book value weights (the weighted average method); (b) the WACC by the total cost method on book values; the agreement of the two; what the result means for the company; and a conclusion.
Formula and reading
WACC = Σ (W × K), where W is each source's share of total capital and K its specific cost. By the total cost method, WACC = Σ (amount × K) / total capital × 100. Both methods use the book values given.
The costs given are taken as the after-tax costs of the sources. The 10 per cent cost of long-term debt is therefore not reduced again for tax.
(a) Book value as weights
| Source | Book value (Rs) | Weight | Cost (%) | Weighted cost (%) |
|---|---|---|---|---|
| Equity shares | 15,00,000 | 0.50 | 20 | 10.0 |
| Preference shares | 6,00,000 | 0.20 | 15 | 3.0 |
| Retained earnings | 3,00,000 | 0.10 | 10 | 1.0 |
| Long-term debt | 6,00,000 | 0.20 | 10 | 2.0 |
| Total | 30,00,000 | 1.00 | 16.0 |
Each weight is the source divided by Rs 30,00,000; equity is 15,00,000 / 30,00,000 = 0.50. Each weighted cost is the weight × the cost; for equity, 0.50 × 20 = 10.
WACC = 16 per cent.
(b) Book value and the total cost method
| Source | Book value (Rs) | Cost (%) | Annual cost (Rs) |
|---|---|---|---|
| Equity shares | 15,00,000 | 20 | 3,00,000 |
| Preference shares | 6,00,000 | 15 | 90,000 |
| Retained earnings | 3,00,000 | 10 | 30,000 |
| Long-term debt | 6,00,000 | 10 | 60,000 |
| Total | 30,00,000 | 4,80,000 |
Each annual cost is the amount × the cost; for preference shares, 6,00,000 × 15 / 100 = 90,000.
WACC = 4,80,000 / 30,00,000 × 100 = 16 per cent.
The two methods agree
Both give 16 per cent, as they must. The weighted average method divides each source by the total first; the total cost method divides the total of the rupee costs at the end.
What the result means
- Equity, at half the capital and the highest cost (20 per cent), contributes 10 of the 16 percentage points.
- Retained earnings are shown at 10 per cent, half the cost of equity. Their true cost is an opportunity cost. At the equity shareholders' expected 20 per cent, the WACC would be 0.5 × 20 + 0.2 × 15 + 0.1 × 20 + 0.2 × 10 = 17 per cent. The answer uses the cost as printed.
- Any new project must earn at least 16 per cent on these figures. More cheap debt would lower the WACC only if the cost of equity did not rise in step.
Conclusion. The weighted average cost of capital is 16 per cent with book value weights (10 + 3 + 1 + 2 percentage points). The total cost method gives the same 16 per cent (Rs 4,80,000 on Rs 30,00,000).
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