Write Your Roll No.

Department of Financial Studies

University of Delhi South Campus
MBA Financial Management)/II Sem. -May 2018
Paper 206 INTRoDUCTORY ECONOMETRICS
Tme: 3 Hours Maximum Marks: 70
(Altempt all questions)
1. Yatin was doing an internship for a NBFC in Noida. He tried to develop a
predictive model for the probability of default using Logit Model. He obtain the
following results u sing SPSS:

Model Summary
Step -2 Log likelihood Cox&Snell R NagelkerkeR
Square Square
1 517.292 211 293

Classification Table
Observed Predicted
DEFAULT Percentage
DEFAULT NO DEFAULT Correct
DEFAULT 294 40 88.0
DEFAULT
Step 1 NO DEFAULT 92 74 44.6
Overall Percentage 73.6
The cut value is
a 500, 0 is default and 1 is no default

Variables in the Equation

S.E Wald df Sig. Exp(B)
LOAN .052 008 44.189 000 949
Step1 INCOME 037 005 56.023 000 000 1.038
|Constant .199 368 292 589 1.220
Where LOAN in Rs. Lakhs while INCOME in Rs. in Thousands.

1 of 7
Required:
estimated model
and the
mathematical model used by Yatin
a. Write the
of the same.

to predict the
statistically significant
b. Are the
variables used by him
probability of default?

and has income of Rs.

15
taken loan of Rs. 25 lakhs
a
c. If a person has
default?
that he will not make a
thou sand, then what is the probability

the person in c. above.

d. Calculate the odd-ratio for

income of
loan of Rs. 55 lakhs and has
e. lf another person has taken a

the probability that he will make a

Rs. 25 thou sand, then what is
default?

if the income
f. What is the rate of change in the probability of no-default
of the person in c. above changes?

of Exp(B) given in the result tables.

g. Give the interpretation

(2+1+2+2+2+2+2 13]

2 of 7
2. From the following information given bëlQW, Comprete the Tabte given below.
0 Y 39.3477 +2.8278X
(3.7067) (0.6733); R? = 0.4450; No. of Observations = 24

VARIANCE OF Y = 29.9678

() Y 44.0478 +0.4188X2
(1.4540) (0.0533); R2 = 0.7371; No. of Observations - 24

G) Xa 3.2142 4.0580 X
(9.0202) (1.6384); R2 = 0.2180; No. of Observations 24

(iv) X1 4.0173 0.0537 X2

(0.5916) (0.0217); R2 =0.2180; No. of Observations 24

Y Residual#1 = 0.0000 +0.3412 X2_Residual

(0.4742) (0.0488); R2 = 0.6896;

Y_Residual#2 0.0000 + 1.4430 X_Residual

(0.4742) (0.4242); R2 0.3447;

Where
Figures in brackets are respective standard errors.
Y Residual#1 are residuals of Y calculated from the estimates of (i) above
and Y_Residual#2 from (i) above.
X2Residuál are calculated from (ii) above.
X Residual are calculated from (iv) above.

3 of 7
sUMMARY OUTPUT

Regression Statistics

Multiple R
R Square
Adjusted R Square
Standard Error

Observations

ANOVA
SS MS F
df
Regression
DResidual

Total

Coefficients Standard Eror Stat

Intercept 38.250832 2.11977
X1
X2

[15]
3. (a) State with reasons whether the following statements are true or false. (No
reason, no marks)

G) If a model is 'over-fitted' model, then its estimates will be biased.

(i) Stationarity condition and Invertibility condition in a ARIMA model are

identical or same.

ii) lfall X terms have been scaled

up by a factor 10, then the corresponding
estimate of beta b will be scaled down
by the factor 10.
-

iv) The methods of testing stationarity for 'difference stationarity time series'
and 'trending time series' are same.

(v) The Standard Error of the Slope Term i.e. b is smaller if there is more
variation in the explanatory variable X.

[10

4 of 7
 (b) Harshit was trying to estimate different types of risk of a
company using the
Single Factor Model. He estimated Total Risk of the Company's security was
0.000023, normalized measure of systematic risk is 1.0232 and the
proportion of
systematic risk out of the total risk is 27.209%. Using the information obtained by
Harshit, you are required to complete the following table: (please
do the
calculations upto six places of decimals)

SUMMARY OUTPUT

Regressiorn Statistics
Multiple R

R Square

Adjusted R Square

Standard Error

Observations 250

ANOVA

SS MS
df
Regression
Residual

Total

Standard
tStat
Coefficients Error
0.0003
0.0005
Intercept
S & PB SE Sensex
0.1063

[12]

5 of 7
 determinants of share return in India. She
4. (a) Darshita was working on

two models whose output are given' below:

developed the following

Dependent Variable NiFTY_RET Dependent Variable NIFTY_RET

Variable Coeficient Std. Eror Statistic Prob.

Variable Coefment Std Emor -Statishc Prob.

C 0110556 0.050898 2.172101 0.0327
0.069150 0018028 3835713 0.0002| FOREX 11738254 0371242 4682264 00000
C
FOREX .765640 0 3693644780220 0.0000 P 0 000169 0.000194 -0.870089 0.3868
INFLATION 0.008556 0003086-2772077 0.0069 INFLATION 0.008823 0003106-2840597 0.0057
NT_RATE 0255112 0 120229 2121891 0.0368| INTRATE
0.254173 0.120410 -2.110896 0.0378
R-squared 0.330982 Mean dependentvar 0.023041
R-squared 0337102 Mean dependent var 0.023041
Adyusted R-squared 0.306800 SD. dependent var 0.083100 Adjusted R-squared 0 304765 SD. dependent var 0.083100
SE of regression 0 069188 Akaike info aiterion 2.459094|| SE. of regression 0.069289 Akaike info criterion -2.445295
Sum squared resid 0.397319 Sdhwaz ariterion 2.3457 19 Sum squared resid 0.393684 Schwarz cnterion -2.303576
Log hitethood 110.9706
13.68746
Hannan-Quinn citer.
Durbin-Watson stat
2413441 Log Iikelihood
2.213310LOg likelihood 1113703 Hannan-Quinn criter 2.388229
F-statstc F-staistc 10.42481 Durbin-Watson stat 2222569
|Prob{F-staistc) 0.000000
|Prob(F-staistic) 0.000001

You are requested to help Darshita for deciding which model she should finally
select out of the two given above and she would also like to have the justification
for the same.

14
(b) One of the Groups did a project on - 'Determinants of Capital Structure ofa

company. Assume that the true model is -

Debt/Equity Ratio = a + : Growth 2 Profitability+ B3 Risk+BaTangibility+

Where
(Revenuet) - Revenue(t-1)/ Revenuet-1))
Growth
Profitability (Net Income after tax/ Total Assets)
Risk = (EBIT/Assets Mean(EBIT/Assets))

Tangibility (Fixed Assets/Total assets)

One of the Group Member suggested the following model (say, Model 1) to be used -

Debt/Equity Ratio = a + Bi Growth+B2 Profitability + Bs Risk +E

And, another member of the Group suggested the following model (say, Model 2)

Debt/Equity Ratio a + Bs Growth + ß2 Profitability + ps Risk+ Ba Tangibility+ Bs Sales+E

6 of 7
Assume that you are observing and listening the discussion taking place in the
Group regarding which model is to be used. Do you think that there are problems
in using any one of the model? If yes, what are the problems with using models (1)
and (2) as given above? According to you, which one of these is a more serious
problem? And, why?

5. (a) What are the following criterions which are used to evaluate goodness of
fit of a model?

) The Economic Criterion

(i) The Statistical Criterion

(ii) The Econometric Criterion

(b) Answer the following:

( Why is there a need for a strong assumption of stationarity in the

analysis of a tim seri s?
Why is every time series not a random walk?

(c) What for the following are used?

(i) Standard Error of the slope parameter

(i) R2

(ii AIC Information Criterion

(i) Ramsey RESET Test

(iv) Durbin-Watson Test

(v) Breusch-Pagan Test

(vi Chow Test

(vii Phillips-Perron Test

3+2+7-121

7 of 7

'
 Wriie Your Roll No.

Department of Financial Studies

University of Delhi South Campus
MBA (Financial Management) Semester II -

May 2018
Paper 201: Macroeconomic Analysis and Policy

Time: 3 Hours Maximum Marks: 7O Marks

(Write your roll No. on the top right immediately on receipt of this paper)

Attempt all questions

The marks carried by each question indicated at the end of each question in brackets

Q.1. In Dementia, it was estimated that a change in the real rate of interest
results in a change in income after a lag of one year. It was found that a
departure of income from the equilibrium level of income caused a
change in the rate of inflation after a lag of one year. Dr. Lousy
Econometriks estimated the relationship between output and inflation
and the relationship between the rate on interest and the level of output
as

to + 0.5{yo- ye)
and

y1-ye-0.8(ro-rs) respectively.
Where ye is the medium run equilibrium level output; rs the real rate of
interest that stabilises the economy at ye; n the rate of inflation and the

subscripts 1 & 0 the time periods. The letters y and r stand for
represent
real output and the real rate of interest.

rule as
The Central Bank of Dementia has derived its monetary

I12-n-2(y1- ye), where n' is the targeted rate ofinlation. At present n

is 4%.
tells it alter the
Suggest a ruleThe Central Bank of Dementia, which
to
either the level ol output or the rate of
interest
rate of interest whenever
leve! of output or the
deviates from the medium run equil1brium
stabilising rate of interest, respectively.
 shaae
tate growth of omnal lndia has been a
.2. he o income in
annun. The
1han O nd that ol e r capil mcome about 9 per
goveTnment can borrow at a 1ate of about 7 1o 8 nominal ratC O
a downWara
nterest. Thecentral government's primary delicit has shown
trend. This has been to a small part helped. by taxes on petroleum
This 1has made the government somewhat complacent.
producs that
Conscqucntly on expenditures and it is likely
it has cased its curb
the primary deficit will not be reduced further. However, some
economists fea that there is no reason to be complacent. They say that
cannot be sustained. They fcar that if the rate of
high rates of grOwth
down, the rate at which thc govcrnment c a n borrow
growth were to come
would become greater than thec rate of growth of GDP. What are these
economists worTIcd about?
.

Answer using the following equations

in nominal
G iB =
T+ AB, where G stands for Government Expenditure
terms; i the nominal interest rate at which the government
borrows; T the
revenue of the government in nominal terms and AB the governmental

borrowing. Public Debt is denoted by B in nominal terms. The public debt

to GDP ratio is given by b = B/PY, where P is the price level and Y is the
real income, so that PY is nominal GDP.
[12

Q.3. Open market operations of the Central Bank increase the non-borrowed
reserves (NBR) of the banking system. It has been seen that a part of this
increased reserve is added to the excess reserves of banks and only the
rest used to give increased loans and advances. It is also seen that the
call loan market rates have a tendency to fall. How does this come about?
[12]
Q.4. A comparison of the middle class societies of the USA and Europe on the
one hand and India on the other shows that young persons typically
leave their parental home and set up their own establishments to a much
greater extent in the USA and Europe than is the case in India. Middle
class young persons in the USA and Europe have a higher expenditure to
income ratio in the starting years of their working life than those in India.
Indeed the young middle class persons in the USA and Europe dissave
rather than save out of their incomes and borrow to do so, while in India
these persons do some saving. In Europe, these persons do not save at
all, whereas in America, some small savings are seen, but the saving is at
a much smaller rate as compared to the case in India In the middle
years of their working life however the behaviour changes. The Americans
and Europeans save a greater part of their now higher incomes than do
the Indians. The Americans and the Europeans use these savings to
repay their debt and build up assets for their retirement, while the
Indians need to save only for their retirement. The result of these diverse
behaviour is that in America and Europe, the stream of consumption is
even and does not change much wiuh the leveci of current income, in
fairly
India the stream of consumption tends to vary with the level of income.
 There is howevCr 0ne dilicrencC n the arrangement between Europe and
America, In Europe, the Welfarc benciits that a person gets are not only
much more than in America if a person were to lose a job, but that there
are programmes EuTOpe, which retrain pcople for new jobs and place
in

them in these jobs as well. Similarly health benefits in the case of illness
are better in Europe as
compared to the USA. What is the explanation
if
any for this observed consumption behaviour in Europe, USA and India?

[12]
Q.5. Dealcrs in the forcign cxchange markcts
are well informed and act
very
quickly to
any information
new which may affect the rates of exchange
especially in a fundamental way. Exporters and importers too get the
same information, butin their case, it takes time to enter into new
contracts to export and import as well as to make arrangements to
produce the goods and market them. Hence changes in exports and
imports take time and are slower. Under these conditions what will be
the impact of changes in monetary policy on the exchange rates
immediately, and after a lapse of time? You may assume that the
Marshall-Lerner conditions are met.
[12]
Q.6. How far do the problems in raising finance; the existence of fixed costs
and sunk costs along with uncertainty and the gradual availability of
information explain why the flow of investment is not smooth as
predicted by Tobin's q theory of Investment? You may take the average Q
as the ratio of the market value of a firm to its replacement cost and
marginal q as the ratio of the addition to a firm's market value to
acquisition cost of additional capital. The derivation of q is not required.
[10
 Write Your Roll No.

Department of Financial Studies

University of Delhi South Campus
MBA (Financial Management) Semester II -

May 2018
Paper 202: Management Accounting and Control Systemas
Time: 3 Hours
Maximum Marks: 70 Marks
(Write your roll No. on the top right immediately receipt of this
on
paper)
Attempt all questions

The marks carried by each question indicated at.the end of each question in brackets

Q.1. "ABC systems are always more accurate than traditional costinng
systems." Do you agree? Explain.

I5
Q.2. "Budgeting is an unnecessary burden on many managers. It takes time
away from important day-to-day problems." Do you agree? Explain.
5
Q.3. "It is confusing to think of fixed costs on a per-unit basis." Do you agree?
Why or why not?

5
Q.4. "CVP relationships are
unimportant in nonprofit organizations." Do you
agree? Explain.

Q.5. The Colorado Catering Company specializes in preparing Mexican dinners

that it freezes and ships to restaurants in the Denver area. When a diner
orders an item, the restaurant heats and serves it. The budget data for
20X5 are as follows:

Product
Tacos
Selling price to restaurants
Enchiladas
T5
Variable expenscs
Contribution margin
Number of units 200,0000 100,0000
 The
company prepares the items in the same kitchens, delivers them in
the sametrucks, and so forth.

Therefore, decisions about the individual

costs of R680,000. products do not affect the fixed

Compute the planncd net incomc for,20X5.

Compute the break-cven point in
inits., assuming that the
companyinaintains its planned sales rhix.
Compute the break-even point in units if the company a) sells
tacos, b) sells only enchiladas.
or only
4 Suppose the company sells 225,000 units of tacos and 75,000
units of enchiladas, for a total of 300,000 units. Compute the net
income. Compute the new break-even point with this new sales
mix

[2+3+3+2=10]
Q.6. The Gruen Toy Company makes a variety of dolls at its
Munich. Its manufacturing operation in
process is highly automated. A recently
installed ABC system has four
activity centers:
Indirect ResOurce
Activity Center Cost per Driver
Cost Driver
Unit
Materials receiving and handling Kilograms of
R0.80 per kg
materials
Production setup Number of setups 55 per setup_
Cutting, sewing, and assembly Number of units R0.50 per unit
Packing and shipping Number of orders 7 per order

Two dolls are called "Ann" and "Andy." They require 0.10 and 0.20 kg of
materials, respectively, at a materials cost of T0.75 for Ann and 1.10 for
Andy. One computer-controlled assembly line makes all dolls. When a
production run of a different doll is started, a setup procedure is required
to reprogram the computers and make other
changes in the process.
Normally, 550 Ann dolls are produced per setup, but for Andy dolls, only
110 are produced per setup. Products are packed and shipped separately
so a request from a customer for, say, three different products is
considered three different orders. Suppdse the gift shop at the Munich
Toy Museum (Spielzeugmuseum) just placed an order for 165 Ann dolls
and 110 Andy dolls.

1 Compute the cost al th products shipped to the Munich Toy

Museum gift siiop.

2 of 5
 2. Supposc the
products made for the Munich
required Toy Museum gift shop
the "Spiclzeugmuseum"
automated
to be printed cach
doll. Because of
on
process, printing the letters takes
materials, but no
it
requires a special production extrafortime or
product. Compute the cost of the setup each
Toy Muscum gift shop. products shipped to the Munich
Explain how the
Company to measurc activity-based-costing
costs of individual
system helps Gruen Toy
than a traditional
system that
products or orders better
based on direct labor.
allocates all non-materials
costs

[4+4+2=10
Q.7. The Drosselmeier
Corporation, located
nutcrackers and has in
Munich, makes Christmas
an annual
Suppose its plant capacity of 2,400 product units.
follows:
predicted operating results (in curos) for the
year are as

Production and sales of 2,000 units, | R180,000

totalsales
Manufacturing costs:
Fixed (total
Variable (per unit_ 70,000
Selling and administrative 25
Fixed (total) expenses:
Variable (per unit 30,000
10

Compute the following, ignoring income taxes:

1 If the
company accepts a special order for 300
price of z40 each, how would the total units at a selling
year be affected, predicted net income for the
prices?
assuming no effect on
regular sales at
regular
2 Without decreasing its total net income, what
is the lowest unit
price for
which the Drosselmeier
additional 100 units not
Corporation could sell an
subject to
selling any variable and
administrative expenses, assuming no el>ect on regular sales at
regular príces?
List the numbers given in the problem that are irrelevant (not
relevant) in solving number 2.
Compute the expected annual net income (with no special orders) if
plant capacity can be doubled by adding additional facilities ata
cost of Z500,000. Assume that these facilities
have an estimated
life of 4 years with no residual
scrap value, and that the current
unit selling price can be maintained for all sales.
Total sales are
Cxpected 1o equal the new tota! plant capacitv each vear. No

3 of
 changcs are cxpectcd in variablc costs pçr unit or in total fixed
CostscxCept for depreciation.

(2+3+2+3=10]
Q.8. Levoy, Corp., cstimates it will produce 25,000 units of an electronic
sensor
currently
part that gocsthis
intosensor
one
of its final products, called a Fluctotron.It
produces internally but is considering outsourcing
this activity. Currcnt internal capacity permits the production of a
maximunm of 40,000 sensors. The production manager has prepared the
following information concerning the internal manufacture of 40,000
Sensors:
Per Sensor
Direct materials 15.00
Direct labor 8.00
Variable overhead 10.00
Fixed overhead 11.00
Total cost 44.00

The fixed overhead of R11 per unit includes a 2 per unit allocation for
supervisor to of sensors. The fixed
production
salary paid to a oversee
costs would not be reduced by outsourcing, except the supervisor would
be fired (the company would terminate his, contract). Assume that if
its purchase price from the outsourcer is T38 per unit.
Levoy outsources,

1. Should Levoy outsource? Why or why not?

I5]
Assume that if Levoy outsourced, it would create sufficient excess
2.
capacity such that it would retain the supervisor and have him
oversee production of a new optical reading product, called a
Scanmeister. If each Scanmeister generates a contribution margin
what is
of 715 and the company produces 10,000 Scanmeisters,
the maximum price Le would accept for outsourcing the
sensors?
51

Q.9. Standard material for 100 kg of Chemical 123 is given below:

Kgs Total
45 of material A 20 per kg 900
40 of material B@ 40 per kg 1600
25 of material C @ 60 per kg 1500

110 kg (Total)
10kg Standard Loss
100 kg output
40000 (Tota!

4 Of 5
 Actual production,2000 kg of Chemical 123 and actual material
as followS: usage is

Kgs Total
1000 of material A@ 19 per kg
R19,000
850 of material B@42 per kg 35,700
450of material C@ 65 per kg 29,250
2300 kg (Total) 83,950 (Total)
Calculate the following:

1. Material cost variance

2. Material price variance
3. Material mix variance
4. Material yield variance
5. Material usage variançe
[10)
 Write Your Roll No.

Department of Financial Studies

University of Delhi South Campus

Semester II May 2018

(Financial Management)
-

MBA

for Management
Paper 204: Quantitative Techniques
Maximum Marks: 70 Marks
Time: 3 Hours
your roll No. on the top right immediately on receipt of this paper)
(Write
Attempt all questions
indicated at the end of each question in brackets
The marks carried by each question

Tableau of a Linear Programming

1. Consider the following Incomplete Optimal
Problem:

20 15 40
Cj
X3 Si s2 s3
Cj BASIS bi x1 X2
0.00 0.44 0.00 1.00 0.08 -1.12
s1 592.00
1.00-0.10 0.00 0.00 0.30 -0.20
X1 20.00
0.56 1.00 0.00 -0.08 0.12
K3 8.00 .00

Z
Cj-Zj
On the basis of the above tableau,
answer the following:
alternative solutions? If yes, how many?
() Does the above solution have

Find the opportunity cost of resources.

(ii)
Resource #2 is added, then give the.new optimumn
(ii)If one extra unjt of the
solution.
determine the
fixed cost of Rs. 56,000, then
(iv) If the. company is having a

Break-Even-Point quantities of X1 and X3?

8
 PVT.
SHYAM ELECTRONICS
has been awarded a contract by M/S
A tran sporter Lucknow
staff colonies in
LID to transport its employees residing aty the different
Lucknow are coded as: SS-1, SS-
to the Company's offices. These staff colonies in
located centrally at one
are
and the offices of the Company
2, OF-1 and OF-2
in its fleet ORDINARY, SEMI
three types of buses
The transporter has
place 5 respectively. The
and their numbers are 5, 6,and
DELUXE and DELUXE,
for
prices by
the Company to the transporter for different types of buses
awarded below:
down per day are given
the different routes per trip up and

SS-1 sS-2 OF-1 OF-2

FROM:
Rs.12500 Rs. 1300 Rs.1325
ORDINARY
Rs.1200

Rs. 13000 Rs.1375 Rs.1425 Rs.1475

SEMI-DELUXE

Rs. 1400 Rs.1475 Rs.15500 Rs.1625

DELUXE

The transporter has als determined the costs of trips up and down for each tripp

for the each type of the bus along with the capacity of each bys to carry the
passengers. Also, the Company has specified the number of employees to be
'

transported each day from each staff colony of the employees. And, if on a day an
employee is not transported to the office, a penalty would be imposed on the
transporter. In this regard, the necessary information is given below:

From Ss-1 SS-2 OF-1 OF-2

CAPACITY
PER BUS
ORDINARY
70 Rs.750 Rs.780 Rs.820 Rs.850

SEMI-DELUXE 65 Rs.775 Rs.800 Rs.850 Rs.890

DELUXE 55 Rs.925 Rs.940

Rs.910 Rs.950
NUMBER OF EMPLOYEES 200 250 125 275
TO BE TRANSPORTED

2of 5
 The Transorter wants to hhyé an
optimum allocation its fleet of buses to the
various routes. You are
requured to
provide him the optimumn solution for the same.
Also, suggest the impåct on the profitability of the transporter if he withdraws one
deluxe bus from the fleet

[15]
3. Restaurants in NCR face
huge rush of customers on the weekends.
Consequently,
they are not able to serve their hest to their customers on the weekends. Chicken
Khurana is facing the same problem and requested
consultant some solution in
a

this regard. Assumethat the consultant has taken

you as an intern to assist him
for the project. One of the task
given to you to collect necessary information about
the customers at Chicken Khurana.

Assume that
you-have obsèrved that the appropriate waiting line model in such
case may be M/M/1. In this regard, you start collecting the
necessary data. It has
been estimated that the
probability of 5 customers arriving in 15 minutes is
9.160% while the
probability of 6 customers arriving in the same period is
12.214 %. Chicken Khurana has a
capacity to serve
16 customers in 15 minutes.
With this information available, you are required to answer the
following:
a. The probability that a
customer would find on his arrival that 5
people are
already waiting for their turn.
b. How many
customers one may find waiting given that there a queue??
C. It has been
observed that 20% of the customers who
will
supposed to wat
are
give a
véry bad review and rating. On a
typical Saturday, between 7:00
pm to 1:00 pm, how
many customers will give a very bad revieW and
rating?

[2+2+3-7]1

sof 5
 data r e l a t e d
to a project
4. Consider the following Requirement of
Crash
Workers
Normal Cost (Rs.
Time (in
Cost (RRs. Thousands)_
Time (11n 10
Thousands) Wecks 36
Actiily
'redeccssor
Weeks) 6
24 48

14
28 5
112
88 2
13
32
4
6
8
E 10
8
28
G B,D
The
H F.G week for the Project will be Rs. 3,000.
that indirect cost per
It is estimated
m a x i m u m 20 workers for
the
manager to
use
has authorized the Project
company
4,000 per week. Suggest the
and each worker is costing the company.Rs.
project can take
Manager
Project Schedule. (Please note that the Project
most economical
r duce the project cost. But,
workers from the company qrd
lower number of the
he takes for the project,
he will returm them only on
whatever number of workers,
completion of the project.)
[15

units p.a., Ordering Cost =

5. (a) Consider the data for a company: Demand =60,000

20% and price =
Rs 150 per unit. At present the
order, Carrying Cost
=

Rs. 400 per

in lot. Due to some reasons, he can
company's supplier supply ordering quantity
one

now supply at the rate of 200 units per day. Should he look for another supplier?

Give reasons for your answers.

141

(b) M/S Sondhi & Sons is planning to replace the existing machine by a new

machine. The estimates of resale values and the maintenance cost per year ol thhe

machine purchased for Rs. 2.5 lakhs are given below. You are required to determine

the economic life of the machine after the firm would like replace it.

4of 5
 Y'ear 4 5 6 8

Maintenance
Cost (Rs. O00) 25 . 30 35 40 45 50 60 70

Resale
Price Lakhs) 1.75 1.5 1.25 1 0.75 0.5 0.25

Assume that the ppropriate discount rate is 10"o.

[6
6. There are four items of different weight per unit and value as shown below, which

are to be loaded in a cargo. The maximum cargo load is restricted to 17 units. How
many units of each item is loaded to maximize the value?

Item Weight Value

1 1 1

2 3 5

3 4 7

4 11

[10]
7. State whether the following statements are true with reasons:

()"While replacing an asset, the management of a company can use

Depreciation Reserve".
(i) A Hard Constraint and a Soft Constraint in the context of a Goal
Programming Model are constraints only and hence, they have no impact
on the objective function.

(11) Increasing Traffic Intensity in the theory of Waiting Line increases the
waiting time of a customer.
(1V A two-person zero-sum gamc, its optimum solution is always Nash
Equilibrium.
(v) An EOQ Model with Finite Replenishment Rate has higher E0Q
and lower cost as compared to EOQ Model with infinite
Quantity
Rate.
Replenishment

5ot 5
 Your Roll No .

Department of Financial Studies, South Campus

MBA (FM)I Sem -May 2018
Paper 203 - Financial Analysis and Valuation

Time: 3 Hours Maximum Marks: 70

(Write your Roll No. on the top immediately on receipt of this question paper)

Attempt all questions. All questions carry equal marks

Answers should be as precise as possible

1. Compare and contrast du Pont and contemporary models of 'Profitabil1ty

Analysis'. Critically 6xamíne both the models by defining and explaining in detail
the key firiancial terms employed at first-level breakdown' in analyzing the
Return on Common Equity'. Illustrate your answer estimating data appropriate
for a discount retailer.

2. Total debt of a company consists of Trade Payables (Rs.100 million), Bank

Overdraft (Rs.100 million) and Long-term debentures (Rs.200 million). Explain
and illustrate the following:

(a) 'Return on Net Financial Assets' and 'Net Borrowing Cost.

(b) 'Operating Assets' and 'Net Operating Assets.

Generate additional data, as required, for illustrating the above by keeping in

mind the fundamental accounting relationships and current financial market
conditions.

Page 1 of 3
3Critically discuss
Constituents of Cornprehensive Income

statement information
bDemand for financial

data relating to
Handicrafts Ltd
4 A retail investor has compiled
the following
on
financial statements for the financial year ending
based on her analysis of the
relevant sources of data (all amounts
are in rupees
31 March 2018. and other
unless stated otherwise)

Book value per share (BPS) 72.68

Earnings per share (EPS) 14.36

Retention ratio 79.4%

Analysts Opinions (average) on EPS forecasts 19.80 (one-year ahead); 20.16

(two-year ahead): with 5-year growth rate of 8%.

to be linked closely to the

Long-term growth forecast for the company is expected
area of operations for
macro ecaonomic factors of the US (the only geographical

the company)

and 14
Cost of debt (pre-tax) and cost of equity are, respectively, 10 percent
mix that is reasonable
percent. You may decide and state clearly the debt-equity
for the economic conditions of operations of the company.

Corporate tax rate applicable to the company is 40 percent.

Determine per share intrinsic value of the equity of Handicrafts Ltd. using
Abnormal Earnings Growth (AEG) model. Give detailed workings of your analysis

in terms of 'multiple blocks of value', besides interpreting your answer.

Page 2 of 3
5. Explain and illustrate:

i) First-time adoption of 1Ind-AS

(i) Cash Conservation Equation

(ii) Normal P/E

(iv) Economic Value Added

(v) Unlevered Beta