OXFORD ENGINEERING COLLEGE

DEPARTMENT OF MANAGEMENT STUDIES

BA7202 FINANCIAL MANAGEMENT
CONTINUOUS INTERNAL ASSESSMENT II
Answer the followings:
PART: A
1.
2.
3.
4.

Define Financial Management.

What is Time Value of Money?
Explain compound value concept.
Current normal P/E =15/1
Current earnings per share Rs. 1.20
Find out the current intrinsic value.
5. What is the
6. What do you mean by the term, Required Rate of Return?
7. Define IRR.
8. What is capital rationing?
9. ABC Ltd. Pays no dividends anticipates a long-run level of future earnings
of Rs. 7 per share. The current price of ABC Ltd.s share is Rs. 55.45;
floatations cost for the sale of new equity shares would average about
10% of the price of the share. What is the cost of new equity capital to
ABC Ltd?
10.What are the various methods of evaluating capital budgeting proposals?

PART: B
1. (a) Distinguish between risk and return of a single asset and that of a
portfolio.
(OR)
(b) Define an option and explain briefly the Black Scholes option model.
2. (a) ABC.CO is considering two machines, only one of which can be
purchased. The available data on the two machines is given below.
Description
Cost (Rs.)

Machine A
48,000

Machine B
85,000

Life of the Machine

5 Years
Annual savings (after taxation)

7 Years

Years
Machine A(Rs.)
Machine B(Rs.)
1
8,000
18,000
2
10,000
25,000
3
15,000
30,000
4
22,000
40,000
5
30,000
20,000
Neither machine will have any salvage value. The cost of capital is 10% compute
the profitability
Index for each machine. Based on the profitability index, which machine should
be purchased?

OR
b. Briefly explain how will you select projects under various methods of capital
budgeting. What is the decision criterion for various techniques?

OXFORD ENGINEERING COLLEGE

DEPARTMENT OF MANAGEMENT STUDIES

BA7202 FINANCIAL MANAGEMENT
CONTINUOUS INTERNAL ASSESSMENT II
Answer the followings:
PART: A
1. What is an efficient portfolio?
2. How is bond different from equity?
3. Differentiate between put option and call option.
4. What is the basic financial decision?
5. What do you mean by time value of money?
6. How would you handle the floatation cost in computing the cost of Capital?
7. What is adjusted NPV?
8. How would you calculate Payback period?
9. What are the objectives of capital budgeting?
10.What do you mean by weighted average capital structure?

PART: B
1. (a) Explain the role of Financial Manager.
(OR)
(b) What happens to the value of perpetuity when interest rates
increase? What happens when interest rate decrease?
2. (a) A firm considering two investment projects, project A requires a net
cash outlay of Rs. 6,000, B requires Rs. 5,000. Both projects have an estimated
life of three years. The net cash flow have been estimated as for project A year
1, a 0.40 chance of Rs. 2,000 and a 0.60 chance of Rs.3,000 year 2, chance of
Rs. 4,000 and a 0.70 chance of Rs.2,000 year 3, a 0.50 chance of Rs. 2,200. For
project B, year 1, a 0.30 chance of Rs. 1000 and 0.70 chance of Rs. 2,000 year 2,
a 0.20 chance of Rs. 2000 and a 0.80 chance of Rs. 1,000 year a 0.40 chance of
Rs. 2,000 and 0.60 chance of Rs. 4000, Assume a 10 percent discount rate.
Which project should be accepted why?
OR
b. A company is considering two mutually exclusive projects. Both require an
initial cash outlay of Rs. 10,000 each and have a life of five years. The
companys required rate of return is 10% and pays tax at 50% rate. The projects
will be depreciated on a straight line basis. The before taxes cash flow expected
to be generated by the projects are as follows:

Before tax cash flow (Rs.)

Project
1
2
3
A
4000
4000
4000
B
6000
3000
2000
Calculate for each project (i) the pay back (ii) the ARR
project should be accepted why?

4
5
4000
4000
5000
5000
(III) the NPV (iv) IRR which