Reg. No.

MANIPAL ACADEMY OF HIGHER EDUCATION

WILP - MBA (BANKING & FINANCE) – VII & VIII TERM
EXAMINATION – JULY 2020
SUBJECT: WMB 608– FINANCIAL MANAGEMENT (DTQ)
Saturday, July 11, 2020
Time: 11:30 – 13:30 Hrs. Max. Marks: 50
 Answer ALL the following questions:

1a. Explain some of the common agency problems that arise in the banking business and
suggest some of the viable propositions avoid agency problems in the banking industry.
1b. Mr. Madhu deposits ₹6,000 every year into his account which pays him 6% interest pa.
Calculate what would be the total value of his investment after 10 years.
1c. The face value of debenture is ₹1,000 with an interest rate of 20%. The interest is payable
annually and the instrument can be redeemed only after 10 years at a premium of 5%.
Further, the company is anticipated to issue non-convertible bonds at a discount of 3% to
ensure the quick sale in the market. The corporate tax is 50%. Calculate the cost of a
debenture.
1d. Explain the two different forms of public issue.
1e. Define (i) Forward (ii) Future (iii) Option
(5 x 3 = 15 Marks)
2a. Sony Ltd. shares are being traded at ₹50 in the market. The company paid a dividend of ₹2
and is expected to pay dividends perpetually. The dividend is expected to have a growth rate
of 10%. What return will an investor get if he buys the share of Sony Ltd at the current
price?
2b. Let us assume that you have two choices in front of you.
• Your friend will give you ₹1,000 now
• Your friend promise to give you ₹1,000 a year after
Which option would you choose and why? Present your views with a strong rationale.
(5+5=10 Marks)
3a. Mr. Shrava has two assets, namely, Alpha and Beta. Which option should he prefer and,
why?
Alpha
Market Expectation Probability Return
Pessimistic 0.25 15%
Most Likely 0.6 9%
Optimistic 0.15 20%
Beta
Market Expectation Probability Return
Pessimistic 0.3 10%
Most Likely 0.4 15%
Optimistic 0.3 8%

3b. Explain the sources of risk.

(5+5=10 Marks)

WMB 608 E-015 Page 1 of 2

4a. Shambu Ltd. planning to acquire a project from the available three projects. The company
assumes that all the projects generate positive cashflows for the next five years. The cost of
capital for the acquisition of the project is 10% which it uses as the discount rate to construct
the net present value of the project. Calculate the Net Present Value of each project and
recommend the project that satisfies the NPV decision rule.

Cash Flow (₹)

Year Project A Project B Project C
0 -40,00,000 -45,00,000 -50,00,000
1 10,00,000 11,00,000 12,00,000
2 11,00,000 12,00,000 13,00,000
3 9,00,000 13,00,000 15,00,000
4 12,00,000 13,00,000 13,00,000
5 15,00,000 10,00,000 14,00,000

4b. Calculate payback period of aforementioned Project A, Project B and Project C and suggest
which project acceptable basing your decision on payback period.
(10+5=15 Marks)

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WMB 608 E-015 Page 2 of 2