FINAL EXAM-Spring Semester 2021-2022

FIRST ATTEMPT
Department: Accounting Stage: Second
Duration: 3 hours Date: / /2022
Subject: Financial Management II

 This question paper carries 60 marks.

 Calculators are allowed in the exam.

Section A

Answer any ONE from the following. 1 X 15 =

15M
1. On 1st January the manager of ABC ltd. Wishes to know the amount of working capital that
will be required during the year. From the following information prepare the working capital
forecast.
 Production during the previous year was 50000 units. It is planned that this level of activity
would be maintained during the present year. The expected ratios of the cost to selling prices
are Raw materials 50%, Direct wages 15% and Overheads 15%.
 Raw materials are expected to remain in the store for 2 months before issue to production.
 Each unit is expected to be in process for 1 month, the raw materials being fed into the
pipeline immediately. And the labor and overhead costs accruing evenly during the month.
 Finished goods will stay in the warehouse awaiting dispatch to customers for 3 months.
 Credit allowed by creditors is 2 months for the date of delivery of raw material.
 Credit allowed to debtors is 3 months from the date of dispatch.
 Selling price is $ 10 per unit.
 There is a regular production and sales cycle.
 Wages and overheads are paid on 1st of each month for the previous month.
 The company normally keeps cash in hand to the extent of $ 20000.
2. From the following particulars prepare a monthly cash budget for the quarter ended 31th
March 2009 (in lakh 100000).
Month Sales Purchases Wages Expenses
Nov 5.00 1.00 2.00 0.40
Dec 6.00 2.00 2.00 0.40
Jan 4.00 3.00 2.20 0.50
Feb 5.00 2.00 2.20 0.50
March 6.00 1.00 2.40 0.50

10% Sales are on cash.

Name of Faculty: ………………………. Signature: ……………………………

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 FINAL EXAM-Spring Semester 2021-2022
FIRST ATTEMPT
Department: Accounting Stage: Second
Duration: 3 hours Date: / /2022
Subject: Financial Management II

Credit to debtor: One month on an average 60% of debtor will make payment on the due date
while the rest will make payment one month thereafter.
Credit from creditors: 2 months.
Wages to be paid twice in a month on 1st and 16th.
Expenses are generally paid within the month.
Plant costing 100000 will be installed in Feb on payment of 35% of the cost in addition to the
installation cost of 5000$, balance to be paid in two installments from the following month.
Opening cash balance is 200000.
Section B

Answer any ONE from the following. 1 X 15 =

15M

3. Explain the methods in calculating Equity cost of capital.

4. Explain dividend and types.

Section C

Answer any THREE from the following. 3X6=

18M

5. Equity share of a paper manufacturing company with a face value of $100 is currently selling
at $ 80. It wants to finance its capital expenditure of $ 200000 either by retaining earnings or
selling new shares. If company seeks to sell share, the issue price will be $ 90. The expected
dividend for the next year is $8 and it is expected to grow at 8 % perpetually. Calculate the
cost of equity capital (Internal and external).
6. A company has net earnings of 800000 and all of its shareholders are in the tax bracket of
25%. The management estimates that under present conditions stockholder’s required rate of
return is 8%. 4% is the expected brokerage to be paid if the stockholders want to invest in
alternative securities. Compute cost of retained earnings.

Name of Faculty: ………………………. Signature: ……………………………

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 FINAL EXAM-Spring Semester 2021-2022
FIRST ATTEMPT
Department: Accounting Stage: Second
Duration: 3 hours Date: / /2022
Subject: Financial Management II

7. James & Co. is planning to issue 9% perpetual preference shares with face value of $ 9 each.
Floatation cost is estimated to be at 5%. Compute (a) Cost of preference shares if they are
issued at (i) face value, (ii) 10% premium and (iii) 5% discount. (b) Compute the cost of
preference shares in these situations assuming 5% dividend tax.
8. A company has a capitalization rate of 12%. It currently has outstanding 4000 shares selling
at $100 each. The firm is contemplating the declaration of dividend of $6 per share at the end
of current financial year. The company expects to have a net income of $ 50000 and has a
proposal for making new investment of $100000. Calculate the value of the firm when
dividend is declared and paid.

Section D

Answer any TWO from the following. 2 X 6 = 12M

9. Mention the factors determining cash needs.

10.Explain Operating cycle.
11.Explain Long Term Sources of Working Capital.

Name of Faculty: ………………………. Signature: ……………………………

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