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B.Com. LL.B. (Five Years) Sem 4 Financial Management 2015 Jun (70 marks) Question Paper with Solutions

KSLU Solved Question Papers

Financial Management

Previous Year Question Paper with Solution

B.Com. LL.B. (Five Years) · Sem 4

2015 Jun (70 marks) Examination

munotes.in

Mumbai

First published on munotes.in on 21 October 2026.

Published by munotes.in, Mumbai.

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The questions below are the paper as Karnataka State Law University set it at the 2015 Jun (70 marks) examination, in the order it was set.

MarksPage

The Paper as Set

The questions in this volume are the questions asked at the 2015 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 · 12 questions answered

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

Q1Following is the capital structure of Sun Ltd.[10]

Answer

The figures given in the question

1) Equity Shares 1000 of Rs. 100 each market price Rs. 150 each, ke = 12%.

2) Debentures 10000 of Rs. 100 each market price Rs. 120 each kd (After tax) = 11%.

You are required to determine WACC using :

a) Book value as weights and total cost.

b) Market value as weights and total cost.

For full marks, cover: the book value and the market value of each source from the number of securities and their face value or market price; the total cost of each source at its given cost; (a) the WACC on book values; (b) the WACC on market values; the weights as a check; and a comment.

The capital of Sun Ltd.

Source	Number	Face value (Rs)	Book value (Rs)	Market price (Rs)	Market value (Rs)
Equity shares	1,000	100	1,00,000	150	1,50,000

Source	Number	Face value (Rs)	Book value (Rs)	Market price (Rs)	Market value (Rs)
Debentures	10,000	100	10,00,000	120	12,00,000
Total			11,00,000		13,50,000

The book value is the number × face value, as with 1,000 × 100 = 1,00,000. The market value is the number × market price, as with 10,000 × 120 = 12,00,000.

The costs are given: equity 12 per cent and debentures 11 per cent after tax.

(a) and (b): WACC by the total cost method

Source	Cost (%)	Book value (Rs)	Cost on book value (Rs)	Market value (Rs)	Cost on market value (Rs)
Equity shares	12	1,00,000	12,000	1,50,000	18,000
Debentures	11	10,00,000	1,10,000	12,00,000	1,32,000
Total		11,00,000	1,22,000	13,50,000	1,50,000

For example, the equity's cost on market value is 1,50,000 × 12/100 = 18,000.

(a) On book values: WACC = 1,22,000 / 11,00,000 × 100, which comes to 11.09 per cent.

(b) On market values: WACC = 1,50,000 / 13,50,000 × 100, which comes to 11.11 per cent.

Check by the weights

Basis	Weight of equity	Weight of debentures	WACC
Book value	1/11, about 0.0909	10/11, about 0.9091	0.0909 × 12 + 0.9091 × 11, about 11.09%
Market value	1/9, about 0.1111	8/9, about 0.8889	0.1111 × 12 + 0.8889 × 11, about 11.11%

The market weights come from 1,50,000 / 13,50,000 = 1/9 and 12,00,000 / 13,50,000 = 8/9. Both methods agree.

Comment

Sun Ltd. is financed mostly by debentures. They form about 91 per cent of the capital at book value and 89 per cent at market value. Because the two costs are close (11 and 12 per cent), the change in weights moves the WACC very little. The market value WACC is slightly higher. Equity, the costlier source, trades at a 50 per cent premium over its face value (Rs 150 against Rs 100). The debentures trade at only a 20 per cent premium. So equity's share of the capital rises a little at market value.

The heavy use of debt also means that the equity holders bear a high financial risk. A cost of equity of only 12 per cent may understate that risk.

Conclusion. Using book value weights, the weighted average cost of capital of Sun Ltd. is about 11.09 per cent (Rs 1,22,000 on Rs 11,00,000). Using market value weights, it is about 11.11 per cent (Rs 1,50,000 on Rs 13,50,000).

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