Financial Management (205)

MBA Semester – II
Examination – 2013
Maximum Marks 75

1. How does a firm achieve short term and long term financial goals? Give
examples.
OR
What is the relevance of time value of money in long term financial
decisions?

2. For a project having an expected life of 5 years, an initial investment of Rs.

60,000 is required. It is expected to generate cash flows of Rs. 12,000, Rs.
16,000, Rs. 20,000, Rs. 24,000 and Rs, 8,000 respectively from the project at
the end of each useful life. Calculate IRR. PV at 10% and 11% are given
below:
1 2 3 4 5
PV factor at 10% 0.909 0.826 0.751 0.683 0.621
PV factor at 11% 0.901 0.812 0.731 0.659 0.593

OR
Critically examine the Pay Back Method of evaluating capital projects.
3. ABC Ltd. has appointed you as Finance Manager. The company proposes to
undertake a new project involving an investment of Rs. 30 lakhs. The
company has following financial plans. Which plan should be accepted?
Give reasons.
Plan A B C
Option I
Equity 100% 75% 66.67%
8% Debentures - 25% 33.33%
Option II
Equity 50% 50% 50%
8% Debentures 25% 25% 25%
12% Preference Shares 25% 25% 25%
Return on Investment 15%, Tax Rate 30%, Value of each Equity, preference
share and each Debenture is Rs. 100.
OR
A simplified income statement of a firm is given below. Interpret various
leverages:
Rs.
Sales 10,50,000
V.C. 7,67,000
F.C. 75,000
EBIT 2,08,000
Interest 1,10,000
Taxes (30%) 29,400
PAT 68,600
4. An equipment costing Rs. 5,00,000 with a 5 year life can be leased for 5
years for payment of Rs. 1,20,000 PA. Alternatively you can borrow Rs.
5,00,000 at interest of 6% to buy the equipment. Loan is repayable
alongwith interest in 5 years. Depreciation is 20%, Corporate loan is 30%
and discounting rate 10% (Discounting factors are given in earlier question.)
Advise the management.
OR
Discuss advantages and disadvantages of Lease Financing in relation to
other ways of acquisition of assets. Give examples.

5. Discuss the management of inventory in a manufacturing organization.

OR
Explain MM model of dividend.