DSIMS/EXAM/FMT/03/V2.

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Program : MMS Semester: II

Specialization: Core Subject: Financial Management
Date Oct 6 2021 : Marks: 60
Time : 2 hour
INSTRUCTIONS:

1. Attempt overall four questions.

2. Question Number one is compulsory and carries 15 marks.
3. Out of remaining 4 questions answer any 3. Each question carries 15 marks.
4. Figures to the right of the question, in brackets, indicate the marks for that question.
5. You are permitted the use of scientific calculators to support any calculations that you need to
make in solving the questions.

Question 1) Equipment A has a cost of Rs 75,000 and net cash flow of Rs 20,000 per year for 6 years. A
substitute equipment B would cost Rs 50,000 and generate Net Cash flow of Rs 14,000 per year for 6
years. The required rate of return of both equipment is 11 per cent. Calculate the IRR & NPV for the
equipment. Which equipment should be accepted and why ?. ( 15 marks)

Question 2) What is the role of accounting ratios in the liquidity management of a bank. State the
important accounting ratios having liquidity management implications for a bank or a financial services
company and explain why ?. ( 15 marks)

Question 3) a) How is a company’s working capital requirement determined?. Explain the term Net
Current Assets and Net Current Liabilities. ( 5 marks)

b) Why is there a need to separate the Finance Management function from the normal Accounting
function. Explain the difference between the two. ( 5 marks)

c) Describe briefly the key Profitability ratios for a company ( 5 marks)

Question 4) Consider the following information for a company ABC Ltd :

Particulars Rs In lakhs
 DSIMS/EXAM/FMT/03/V2.0

EBIT – 1120

PBT 320

Fixed Cost 700.

Calculate the percentage change in earnings per share if sales increased by 5 percent.( 15 marks)

Question 5) XYZ Limited wants to calculate its cost of equity and the firm”s cost of capital. The equity
beta of the company is 1.18. The Finance Manager has identified a 20 year long term government bond,
which has a current yield of 7.8 percent, as the risk free asset. The historical average of the stock
market return is estimated as 21.5 percent and the risk free return as 8.5 percent. The target capital
structure of the company is to maintain debt – equity ratio of 1.5 : 1. Tax rate is 30 percent. Calculate
the cost of equity and the WACC. (Weighted Average Cost of Capital) ( 15 marks)