SVNC/MBA/F-36/15-16

20.4.16

NADAR MAHAJANA SANGAM

S. VELLAICHAMY NADAR COLLEGE
An Autonomous Co-Educational Institution Affiliated to Madurai
Kamaraj University
Re- Accredited with A by NAAC, An
ISO 9001:2008 Certified
Institution
NAGAMALAI, MADURAI 625 019.
DEPARTMENT OF MANAGEMENT STUDIES
INTERNAL TEST III, SEM - II - 2015 -16
FINANCIAL MANAGEMENT - 14184202
CLASS: I MBA
Date: 20.4.16
3.00 PM

MAX MARKS: 30
TIME: 1.00-

PART A
ANSWER ALL THE QUESTION

4*1=4

1. What is Capital Budgeting?

2. What is working Capital?
3. Write the formula for Payback Period
4. What is Net present value method?
PART B
ANSWER ALL THE QUESTIONS:

3 * 4 = 12

5. (a) ABC Ltd. Is considering two projects. Each requires an investment of Rs.
10,000. The net cash inflows from investment in the two projects X and Y are as
follows:
Years
X
Y
1
5000
1000
2
4000
2000
3
3000
3000
4
1000
4000
5
5000
6
6000
The company has fixed three years pay-back period as the cut-off point.
Or
(b) What is the need & significance of Capital Budgeting.

6. (a) A firm has the following capital structure and after tax costs for the different
sources of funds used:
Source of funds

Amount
Proportion
After tax cost
Rs.
%
%
Debt
15,00,000
25
5
Preference shares
12,00,000
20
10
Equity shares
18,00,000
30
12
Retained Earnings
15,00,000
25
11
Total
60,00,000
100
You are required to compute the weighted average cost of capital
Or
(b) Explain different types of costs.
7. (a) From the following estimates, calculate the average amount of working capital
required.
Per annum
a) Average amount locked up in stock:
(Rs.)
Stock of finished goods and
Work-in-progress
10,000
Stocks of stores, material etc.
8,000
b) Average credit given:
Local Sales 2 Weeks credit
1,04,000
Outside the state 6 weeks credit
3,12,000
c) Time available for payments:
For purchase 4 weeks
78,000
For wages 2 weeks
2,60,000
Add 10% to allow for contingencies.
Or
(b) What are the advantages of working capital?
PART C
ANSWER ANY TWO
2* 7 = 14
8. From the following information suggest which of the two projects should be
accepted on the basis of net present value method.

Initial outlay
Cash inflows after taxes:
Year 1
2
3
4
Service life
Required rate to return

Project A
Rs.
10,000
8,000
7,000
Nil
Nil
2 Years
10%

Project B
Rs.
20,000
8,000
9,000
7,000
6,000
4 Years
10%

9. A company desires to purchase a business and has consulted you, and one point on
which you are asked to advise them is the average amount of working capital
which will be required in the first years working.
You are given the following estimates and are instructed to add 10% to your
computed figure to allow for contingencies.
Rs
a) Average amount locked up in stock:
Stock of finished product
Stock of stored, materials etc.
b) Average credit given:
Inland sales 6 weeks credit
Export sales 1 weeks credit
c) Lag in payment of wages and other out standings:
Wages
-1 weeks
Stores, materials etc
-1 weeks
Rent, royalties etc
-6 months
Clerical staff
-1/2 month
Manager
-1/2 month
Miscellaneous expenses
-1 months
d) Payments in advance:
Sundry expenses (paid quarterly in advance)

5,000
8,000
3,12,000
78,000
2,60,000
48,000
10,000
62,000
4,800
48,000
8,000

e) Undrawn profits on an average throughout the year

11,000

Calculate profits on an average amount of working capital required.

10. A company issues 10% irredeemable debentures of Rs. 1,00,000. The company is
in the 55% tax bracket. Calculate the cost of debt ( before as well as after tax) if the
debentures are issued at (i) par

(ii) 10% discount

****** All the Best *******

and (iii) 10% premium.