B.Com. (Financial Management) SEM V 2023 2024 Dec 2024 FINANNCIAL MANAGEMENT I Question Paper - Mumbai University | munotes

Questions asked in this paper

1. Q1 A. Multiple Choice Questions (any 8) (8 M)
   • 1. Which financial concept is related to the present value of a future cash flow?
   • 2. A company is considering two investment projects. Project A has an internal rate of return (IRR) of 8%, while Project B has an IRR of 6%. Which project should the company choose if the cost of capital is 7%?
   • a. Project A b. Project B
   • c. Both projects are equally Neither project is attractive
   • 3. Ifa company's cost of equity is 10%, its cost of debt is 5%, and its tax rate is 30%, what is its WACC (weighted average cost of capital) assuming a 70% equity and 30% debt capital
   • 4. What is the primary purpose of using the Capital Asset Pricing Model (CAPM) in determining a company's cost of equity?
   • a. To estimate the company's total market value
   • b. To calculate the company's earnings per share
   • c. To assess the company's financial leverage
   • d. To estimate the required rate of return for equity investors
   • 5. If a company is financed entirely by equity and has no debt, what is its WACC?
   • a. Zero b. Equal to the cost of equity
   • c. Equal to the cost of debt d. It cannot be calculated without debt
   • 6. What is the primary purpose of capital budgeting in business?
   • a. To manage daily operational expenses
   • b. To evaluate potential long-term investment projects
   • c. To determine short-term financing needs
   • d. To assess quarterly financial performance
   • 7. Internal Rate of Return (IRR) is the discount rate that:
   • a. Equals the project's initial investment
   • b. Results in the highest Net Present Value (NPV)
   • c. Provides the shortest payback period
   • d. Measures the profitability of the project
   • 8. Which of the following is a tax-deductible expenditure?
   • a. Intereston Debt Preference dividend c. d. All of the above
   • 9. Dividend Payout ratio is
   • c. DPS divided by Face value d. EPS divided by DPS
   • 10. Dividend is distribution of
   • c. Income of the company d. Return on Debentures
2. Q1 B Match the columns (any 7) (7 M)
3. Q2 A Find out the present value of Equity Shares of a company from the following
   • 1. Number of shares invested in 100. Face value is Rs 10. Market value is Rs 15
   • 2. Dividend declared in the last year 15%
   • 3. Dividend growth expected in the next 5 years is 10% p.a. Thereafter the growth is 7% over every year for a period of another 5 years
4. Q2 B Mr. Ajay deposits Rs 3,00,000 annually in a bank for 6 years. The deposit earns 8% per year. What is the future value at the end of 5 years? (7 M)
5. Q2 C From the following information, calculate expected rate of return for Panasonic Ltd And Ultrasonic Ltd. and advise whether the companies are good for investments. (8 M) Calculate the expected rate of return and standard deviation of both the companies
6. Q2 D Bunny started his business by investing Rs 6,50,000in his firm. Find the present value of the following cash flow streams if the discount rate is 12% (7 M)
   • P.V Factor of Rs.1
7. Q3 A M/s. Pragna & Co. Ltd. Is considering two different projects. Project A and B are mutually exclusive projects each requiring an initial cash outflow of Rs. 1,00,000 having life of 5 years. The company pays tax @ 50% and its rate of return required is at 10%. The projects will be depreciated on a Straight-Line basis. The net cash flows before taxes and depreciation are expected to be generated by the projects are as follows: (15 M) You are required to calculate:
   • 1. The payback period of each project
   • 2. The Net present value of each project
   • 3. The profitability index for each project
8. Q3 B Standard Chemicals Ltd. Furnishes the following information: (15 M) Cash Outlay (Rs in lacs) NPV (Rs. In lacs) Rank them on Profitability Index and then select them also determine the NPV All projects are divisible, i.e., size of investment can be reduced, if necessary, in relation to the availability of funds. None of the projects can be delayed or undertaken more than once
9. Q4 A Nice Ltd. Has the following capital structure: (15 M) Equity capital (25,00,000 shares of Rs 10 2,50,00,000 4,50,00,000 Preference share capital (50,000 shares of 50,00,000 45,00,000 Rs 100 each carrying 13% dividend) Reserves and Surplus Debentures (1,50,000 Debentures of Rs. 100 1,50,00,000 1,45,00,000 each carrying 14% interest) The expected dividend per share is Rs 1.40. The dividend per share is expected to grow at a rate of 8% forever. Preference shares are redeemable after five years, whereas the debentures are redeemable after six years. The tax rate for the company is 50%. Calculate the weighted average cost of capital for the existing capital structure using: Book value weights
10. Q4 B The Aaroha Company has the following capital structure: (15 M) The share of the company sells for Rs.20. It is expected that company will pay next year a dividend of Rs. 2 per share which will grow at 7% for ever. Assume a 35% tax rate
    • a. Compute a weighted average cost of capital based on existing capital structure
    • b. Compute the new weighted average cost of capital if the company raises an additional Rs 40,00,000 debts by issuing 10% debentures. This would result in increasing the expected dividend to Rs. 3 and leave growth rate unchanged, but the price of share will fall to Rs. 15
    • c. Compute the cost of capital if in (a) above growth rate increases to 12%
11. Q5 A Explain the various methods of financing business operations. (8 M)
12. Q5 B What are the main objectives of financial management? (7M)
13. Q5 C Write Short notes: (any 3) (15 M)
    • 2. Ploughing back of profits
    • 3. Factoring as a method of financing
    • 4. Opportunity cost of capital
    • 5. Concept of time value of money

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