The document is an end-term examination for a course in Financial Management. It contains 4 questions assessing students' understanding of portfolio analysis, capital budgeting techniques, stock valuation, capital structure theory, and leverage. Question 1 involves calculating the expected return and standard deviation of a portfolio and discussing limitations of IRR. Question 2 estimates systematic risk of a stock and analyzes how returns would change with beta and inflation. Question 3 explains Modigliani-Miller capital structure theorem with and without taxes and how financial leverage increases shareholder returns. Question 4 calculates operating and financial leverage at different sales levels for a company.
The document is an end-term examination for a course in Financial Management. It contains 4 questions assessing students' understanding of portfolio analysis, capital budgeting techniques, stock valuation, capital structure theory, and leverage. Question 1 involves calculating the expected return and standard deviation of a portfolio and discussing limitations of IRR. Question 2 estimates systematic risk of a stock and analyzes how returns would change with beta and inflation. Question 3 explains Modigliani-Miller capital structure theorem with and without taxes and how financial leverage increases shareholder returns. Question 4 calculates operating and financial leverage at different sales levels for a company.
The document is an end-term examination for a course in Financial Management. It contains 4 questions assessing students' understanding of portfolio analysis, capital budgeting techniques, stock valuation, capital structure theory, and leverage. Question 1 involves calculating the expected return and standard deviation of a portfolio and discussing limitations of IRR. Question 2 estimates systematic risk of a stock and analyzes how returns would change with beta and inflation. Question 3 explains Modigliani-Miller capital structure theorem with and without taxes and how financial leverage increases shareholder returns. Question 4 calculates operating and financial leverage at different sales levels for a company.
Management Programme: PGDM-RM42 FPM-RM20 Date: 14.03.2022 Term Roll No.
End-Term Examination
Duration of Exam: 2 Hrs Weightage: 30% Total Marks: 40
1. Solve the followings: (5+5)
(a) A portfolio consists of two securities A and in the proportion of 3:2. The correlation between the two securities is (-)0.50. The expected returns (ER) and standard deviation (SD) are as below: A B
ER 20% 10%
SD 30% 20%
Calculate the expected return and SD of the portfolio.
(b) Discuss the limitations of the IRR technique of capital budgeting and the advantages of the MIRR technique the IRR over technique. 2. Given risk-free rate (R;) 6%, expected market return 16% and expected return = on a stock is 18%. Estimate the systematic risk of the stock. (10) i. Analyze the return on the stock if its beta (market risk) falls to 0.80. ii. Analyze the return on the stock if inflation increases by 100 basis points.
3. Explain the following.
(5+5) (a) Discuss the Modigliani and Miller theorem on the capital structure without and with taxes (b) Show that with financial leverage, expected return for shareholders increases.
4. Explain the following. (5+5)
(a) ABC Ltd sells a chair for Rs. 1,000. The variable costs (per unit) and fixed operating o are Rs. 600 and Rs. 100,000, respectively. For interest expense of Rs. 80,000, calculate the degree of operating and financial leverage when sales are 1,000 and 2,000 units. (b) Compare the two degrees of operating and financial leverage at different levels of sales and comment.